In: Accounting
The High Court of Australia’s decision in Gambotto v WCP Ltd (1995) 182 CLR 432 provided a test for determining whether a constitutional alteration may be set aside on the basis of unfairness to the minority.
Explain this test with reference to the facts of the case
The test was that when the majority shareholders want to amend constitution of the company to permit expropriation then it has to ensure that this action will not operate oppressively in relation to the minority shareholders of the company.
In the case mentioned in the question the majority shareholders of WCP had held around 99.7% of the company’s shares. Gambotto and Sandri were minority shareholders who held approximately 0.094% of WCP’s shares. The parent company of WCP i.e. IEL wanted to acquire all shares and hence were looking at acquire the 0.094% ownership held by Gambotto and Sandri. Gambotto and Sandri were not in favor of selling their shares.
The court held that a company can amend its constitution to force acquisition of shares only when the proposed acquisition is necessary to protect (or promote) the interest of the company. Here the purpose of altering the constitution of WCP (by changing its articles of association) was mainly to aggrandize the majority and so the court rejected this action by the company and ruled in favor of the minority shareholders.