Question

Company Law

ILAC

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.

Answer 1

In the given case of Gambotto v WCP Ltd (1995) 182 CLR 432, the facts of the case are as follows:

WCP Ltd is a wholly owned subsidiaries of Industrial Equity Ltd (IEL) who held about 99.7% shares. Two distinct individuals held 0.094% of the share capital. IEL wanted to acquire the shares of these two individuals in order to tae advantage of tax benefits. Since, IEL failed in acquiring these shares, it tried amending the  company constitution to let a shareholder with more than 90% shares forcibly acquire a minor shareholder’s shares.

The question that arose was whether, IEL was correct in trying to amend the articles to compulsorily acquire the petitioner's shares?

The High Court held that the proposed amendment was invalid as it was not made for a proper purpose. It laid down a two-limbed test that must be satisfied if one wants to amend the articles:

• the power is exercisable for a permissible purpose; and
• its exercise will not operate oppressively in relation to minority shareholders