In this case, the Court noted that absent any other oppressive conduct, an offer to acquire a minority shareholder’s shares at a discount to reflect the minority status will not generally constitute oppression. In considering oppression, the Court’s focus will be on “commercial unfairness”, to be determined objectively according to ordinary standards of reasonableness and fair dealing. Where a shareholder is seeking to exit, other shareholders should be careful to ensure all dealings are conducted in a way that is commercially fair and reasonable.
Mr Ian Allan Byrne (Mr Byrne) was a minority shareholder in AJ Byrne Pty Ltd and Loka Pastoral Co Pty Ltd (the Companies), the other shareholders of which included his father, mother and brother. The Companies were controlled via a partnership between Mr Byrne and his family members (the Partnership). Following the deterioration of the relationship between Mr Byrne and his family, the shareholders of the Companies (the defendants) offered to purchase Mr Byrne’s shares at a price equal to their market value with a discount reflecting the fact that the shareholding was a minority shareholding.
In earlier proceedings, the Court had ordered that the Partnership be dissolved, that a receiver and manager be appointed and that an account be taken in respect of the dealings, transactions, assets and liabilities of the Partnership. Mr Byrne then brought proceedings seeking an order under s233(1)(d) of the Corporations Act 2001 (Cth) that the defendants purchase his shares without a minority discount, or alternatively, an order for the Companies to be wound up for oppression or on just and equitable grounds (under s461(1)(k)). The substance of Mr Byrne’s case was that his alleged exclusion from the Partnership and from the management of the Companies since December 2010 without a subsequent offer to purchase his shares at full value constituted oppression.
The Court made some general observations that in considering oppression claims, its focus will be on “commercial unfairness”, to be determined objectively according to ordinary standards of reasonableness and fair dealing. The Court also noted that in the case of a family company, fairness must be considered in light of the history of the company and the family and the purpose for which the company was formed.
The Court noted that absent other acts of oppression, a failure to offer to purchase Mr Byrne’s shares without a discount would not of itself give rise to oppression. However, the Court drew a distinction between the question of whether oppression is established and valuation issues arising from an order to buy out a shareholder’s shares as a remedy for oppression. Where oppression has been established, it will not generally be appropriate to apply a discount to the value of a minority shareholder’s shares.
Ultimately, the Court accepted the defendants’ evidence that Mr Byrne had expressed a wish to exit the Partnership and the Companies and the offer to purchase his shares was to give effect to that wish. As such, the Court found that no oppression was established.
The Court also refused to order that the Companies be wound up under s461(1)(k) emphasising that winding up is a remedy of last resort and the loss of confidence between the members of a company will not necessarily support a winding up on just and equitable grounds, unless it frustrates the commercially sensible operations of the company and any loss of confidence is justified.