Minority Oppression In A Company
Being a minority shareholder in a company is not a walk in the park. To give some context:
- Minority shareholder votes are virtually meaningless unless they could garner the support of the majority shareholders;
- They have to be on constant alert to the attempts by the majority shareholders to abuse their power to the detriment of the minority shareholders.
So what happens if the above two instances happen? Such conduct is commonly known as a minority oppression.
What is minority oppression
Minority oppression was defined in Re Kong Thai Sawmill (Miri) Sdn Bhd as a conduct by the majority shareholders which visibly departs from the standards of fair dealing and a violation of the conditions of fair play against the minority shareholders. In order to successfully raise a claim on minority oppression, the court held that:
- There must be an identifiable conduct that is deemed to be unfair against the minority shareholder before that conduct is deemed to be oppressive against the minority; and
- The oppression must not be a past oppression i.e. it must be a present one that continued on to the day of the proceedings.
What amounts to minority oppression
While the court in Re Kong Thai Sawmill (Miri) Sdn Bhd held that the mere fact that the minority shareholder disagrees with a decision made by the majority shareholder does not amount to a minority oppression and proceed to not define what amounts to minority oppression, over the years the courts have identified some factors which may or may not be considered as minority oppression. For example:
- A mere breakdown of the personal relationship between the shareholders stemming from the fact the majority of shareholders have breached their fiduciary duty is no considered a minority oppression. The minority shareholder cannot raise minority oppression merely because he cannot see eye to eye with the majority shareholder.
- The conduct must be deliberate and indifferent that it causes financial losses to every shareholder of the company, including that of the minority shareholders, when the majority shareholders clearly could have prevented such an outcome.
- The conduct or decision making by the majority shareholders must have departed from the practices laid down in the company’s constitution/ articles of association or from the laws and regulations governing corporate affairs.
It must be noted that one can only raise minority oppression if he is a minority shareholder of the company and that he is raising minority oppression to protect his interest as a shareholder i.e. he cannot raise minority oppression if he is protecting his interest as a director of the company.
Available remedies for minority shareholders
Aggrieved shareholders can apply to a court for relief under section 346 (1)(a) of the Companies Act 2006 (‘CA’). It must be noted that before the induction fo the new CA, the same relief can be found under section 181 (1)(a) of the old CA. In general, if the court is satisfied that the conduct of the majority shareholders amounts to a minority oppression, the court may:
- direct, prohibit, cancel or vary any transaction or resolution that is passed;
- regulate the future conduct of the company;
- allow other members to purchase shares and debentures of the company;
- provide for reduction of the company if the shares are bought; or
- wound up the company.
The remedies that are available to an aggrieved shareholder is non-exhaustive. In Datuk Kasi Palaniappan & Anor v Setia Haruman Sdn Bhd & Ors, the court held that they have wide discretion to grant any and all reliefs that they consider fit in the circumstances before them. However, such remedies should be aimed at bringing an end or remedying the aggrieved matters instead of jeopardizing the running of the company.
At the end of the day, the majority rule postulated in Foss v Harbottle and MacDougall v Gardiner i.e the majority shareholders must have influence in the ordinary decision-making process will always trump over the will of the minority shareholders. This is what the minority shareholders have signed up for when they become a minority shareholder. Until and unless the minority shareholders are able to establish a conduct that is deemed to be oppressing the minority, they will have to constantly live in the fact that their wishes will always be voted down by the majority shareholders.