So the "scars" will disappear.
Fresh new liquidity, e.g. $1500pfn pay to workers (last night's govt package) and $1500pfn to those on centrelink - will refuel the prices.
Your suggestion of 30% is wise unless you are a long term holder who sees the business in a new reality (post 2022) and admiring the low beta, Price/Sales 0.36 and Price/Book 1.00.
are wise. On the other hand, the Australian High Court is now focusing on potential shareholder oppression.... where the majority shareholders act towards the minority shareholders in a way that may be regarded, at law, as oppressive or unfairly prejudicial or unfairly discriminatory pursuant to section 232 of the Corporations Act 2001.
I will refer to some of the orders the Court is able to make pursuant to section 233(1) of the Corporations Act, paying particular attention to the compulsory purchase orders. The Court's power to give relief under section 233 of the Corporations Act depends upon proof that the affairs of the company have been conducted in a manner that is oppressive, unfairly prejudicial to or unfairly discriminatory against a member or members of the company.In Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459 Brennan J said at 472 on the former equivalent to section 232:
The question of unfairness is one of fact and degree which section 320 requires the court to determine, but not without regard to the view which the directors themselves have formed and not without allowing for any special skill, knowledge and acumen possessed by the directors. The operation of section 320 may be attracted to a decision made by directors which is made in good faith for a purpose within the director's power but which reasonable directors would think to be unfair. The test of unfairness is objective and it is necessary, though difficult, to postulate a standard of reasonable directors possessed of any special skill, knowledge or acumen possessed by the directors. The test assumes (whether it be the fact or not) that reasonable directors weigh the furthering of the corporate object against the disadvantage, disability or burden which their decision will impose, and address their minds to the question whether a proposed decision is unfair. The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.
Wayde's case was considered in Re George Raymond Ply Limited; Salter v Gilbertson (2000) 18 ACLC 85 in which Byrne J said (at 91):
The task of the court in determining whether allegations of oppression have been made out is to examine the conduct, not in isolation, but in the context in which it takes place; Re Baggett Well Pastoral Co Ply Limited; Baggett Well Pastoral Company Ply Limited v Reid; Shannon v Reid (1994) 12 ACLC 42; (1993) 12 ACSR 197 at 212 per Debelle J (with whom King CJ and Millhouse J agreed). The mere fact that the conduct has an adverse impact on minority shareholder does not establish oppression. The mere fact that a shareholder has an interest which is a minority interest means that this interest is liable to be outvoted by the majority and, further, that the shareholder is at risk that a decision made by the majority may have a financial consequence adverse to the minority. This is not, for that reason alone, oppression: Re M Dailey & Co Pty Limited (1968) 1 ACLR 489 at 492, per Lush J. Moreover, under the enlarged provision introduced in Australia in 1984, the added matters include the word 'unfairly'. But, as Richardson J pointed out in. Thomas v H.W. Thomas Ltd the enlarged provision has a wider meaning, picking up conduct that is unjustly detrimental to a minority shareholder. It must, therefore, be shown that the conduct was beyond power or performed otherwise than in good faith or is unfair in accordance with ordinary standards of reasonableness and fair dealing: Wayde v New South Wales Rugby League Limited (1985) 3 ACLC 799 at 806; (1985) 180 CLR 459 at 472 per Brennan J.
Majority Shareholders Restricting Divs Without Good Business Reason
It may be oppressive not to declare a dividend if the board of directors do not review its policy of not declaring a dividend in changing economic circumstances and in circumstances in which the directors have reviewed their salary for the same period leading to a significant increase in salary: Shamsallah holdings Pty Limited v CBD Refrigeration and Airconditioning Services Ply Limited (2001) 19 ACLC 517.
Reducing Shareholders' Interest in the Company by Making a Share Issue Contrary to Legitimate Expectations and/or Contrary to Mutual Trust and Confidence
There can be oppression, however, if the majority shareholders' intention in making an allotment of shares is to further their self-interest and/or it offends the principle of mutual trust and confidence.
Self Interest
In J D Hannes & Ors v M J H Ply Limited & Ors 7 ACSR 8, the Court of Appeal considered the question of oppression in the context of a further allotment of shares. In that case the first appellant (the defendant -in the Court below) was the governing director and held all the "governor's" shares in the company which conferred on him wide powers including the right to "the whole management, government and control of the company". The appellant also had voter control at shareholders meetings.At a meeting of directors, shares of the company were allotted to another company, Jamar Pty Limited, a company of which the appellant and his second wife were the shareholders. At a later time, the appellant and the company executed a service agreement which provided for the appellant to be paid a large salary package.The other shareholders in the company, the respondents on the appeal (the plaintiff in the Court below), contended that the share allotment and the service agreement constituted breaches by the appellant of his fiduciary duty to the company and that such conduct entitled the Court to make orders under the former equivalent to section 232 of the Corporations Act.As a factual matter the trial judge concluded that the motivation for the appellant in causing the company to allot the shares and to enter into the service agreement was his desire to obtain a financial benefit for himself and second wife. The Court of Appeal upheld the primary judge's orders that both the allotment of shares and the employment agreement be set aside.
Diverting Business from the Company by the Majority Shareholders
Diversion of business from the company by the majority shareholders can amount to oppression: see for example Scottish Cooperative Wholesale Society Limited v Meyer [1959] AC 324.The Scottish case involved a situation in 1950s England in which the manufacture of rayon cloth was controlled and remained controlled until 1952. The Scottish Cooperative in 1946 formed a subsidiary company with two individuals who had a licence to manufacture rayon cloth. The subsidiary company was to enable the Scottish Society to participate in the manufacture and sale of rayon materials which it otherwise would not have been able. Shares in the subsidiary company were issued as follows: the Scottish Society acquired 4,000 shares and the two individuals who held the relevant licences for the manufacture of rayon cloth in the amount of 3,900. The subsidiary company traded successfully for several years and earned substantial profits. In 1951 the Society sought to purchase from the individuals their shares at less than their true value. The offer was rejected by the individuals. After the removal of government control the Scottish Society adopted a policy of transferring the company's business to a new department within its own organisation, thereby forcing down the value of the company's shares.The Court found that the actions of the Scottish Society was oppressive and the two individuals were entitled to relief by way of compulsory purchase of the shares by the Scottish Society. In reaching this decision, the Court per Lord Keith of Avonholm said at 361 the following:My Lords, if the Society could be regarded as an organisation independent of the company and in competition with it, no legal objection could be taken to the actions and policy of the Society. Lord Carrnont pointed this out in the Court of Sessions. But that is not the position. In law, the Society and the company were, it is true, separate legal entities. But they were in the relation of partner and subsidiary companies... The company was in substance, though not in law, a partnership consisting of the Society and the respondents. Whatever may be the other different legal consequences following on one or the other of these forms of combination, one result, in my opinion, followed in the present case from the method adopted, which is common to partnership, that there should be the utmost good faith between the constituent members In these circumstances, I have no doubt that the conduct of the Society was oppressive.
LEGISLATIVE REMEDIES
Section 233 of the Corporations Act provides that in the event that a Court finds that there has been oppression pursuant to section 232 the Court is able to make any order that it considers appropriate.Which order is appropriate will depend upon the circumstances of each case, but the order sought, other than interlocutory orders, should be those orders which dispose of the matter finally and which a Court would normally make having regard to the circumstances. The most common form of remedy sought by minority shareholders is the purchase of shares or that the company be wound up. With regard to these remedies the following should be considered:
a) ordinarily the Court is reluctant to order the winding up of asuccessful solvent company:Cumberland Holdings Ltd Washington H. Soul Pattinson and Co Ltd (1977) 2 ACLR 307; winding up is a drastic remedy. It carries with it the possibility that assets will be realised at a lower value than if the company is sold as a going concern;
(b) when valuing the shares of the oppressed shareholder for the purposes of making an order under section 233 of the Corporations Act, the Court should endeavour to place the oppressed shareholder in a position as if the oppression had not occurred. In this regard the Court in ES Gordon Pty Limited v Idarneneo (1994) 15 ACSR 536 at 540 said the following: ... in cases dealing with the price at which an oppressor is to purchase the oppressed shares in a company the word "fair" has been given significance. For instance, in Scottish Cooperative Wholesale Society Limited v Meyer [1959] AC 324 at 369, Lord Denning said that one of the most useful orders that could be made is to 'order the oppressor to buy their shares at a fair price: a fair price would be, I think the value which the shares would have had at the date of the petition, if there had been no oppression'. The concept of 'fair price' in this sense has been followed subsequently.....The flavour of the judgments in the company oppression cases is that looking to the fair value one must look at all the circumstances of the case and seek to put the oppressed in the same position as nearly as can be as if there had been no oppression, erring, if there is to be any erring, on the side of the oppressed.;
(c) as a general proposition it is inappropriate to discount the value of the shares held by the oppressed party. In this regard the Court in Roberts v Walter Developments Pty Limited (1997) 15 ACLC at 906 stated that:Generally, it appears that where a court orders the purchase of a share by way of relief against oppression, it is considered to be inappropriate to apply any discount to a minority share which might be applied if one was seeking a 'market value' of the share. The reason is, that the transaction is not a market one but is a judicial remedy. It further appears to be generally considered that it is unfair to apply discount to a sale which takes place only because of oppressive conduct on the part of others.
