Question

When is it appropriate to bring a statutory derivative action (s 236)? Draw a flowchart for the steps to be followed in an application for oppression by a minority shareholder. What are other personal rights conferred on members by the Corporations Act? (Maximum 275 words).

CITATION PLSE

Answer 1

SOLUTION:

A statutory derivative action refers to a corporate action brought by a member on behalf of his corporation against it’s directors or officers for an alleged act, which is harmful or prejudicial to the corporation’s interests. The objective of such an action being, to seek relief on behalf of the company. This is an exception to the majority rule as conveyed by Foss Vs Harbottle case.

Under following circumstances a member may initiate a statutory derivative action:

• Ultra Vires (beyond the powers) and illegal acts
• Where majority misuses it’s powers so as to defraud or oppress the minority
• Where such wrongdoers were in control
• Breach of Fiduciary (Trustee) duties by the promoters or directors
• Acts that curtail the rights of individual members.
• The applicant is acting bonafide (in good faith) and in corporation’s interest, not out of personal interest.

Steps to be followed w.r.t application filed for oppression by a minority shareholder:

Step 1: The individual establishes his entitlement to file such application on corporation’s behalf.

Step 2: Such individual avails leave as granted under Section 237.

Step 3: The court issues directives to the company thereby ordering it to do or abstain from doing an activity. Also it may initiate proceedings against such wrongdoers.

Personal Rights of Members:

1. Right to inspect books of accounts.
2. Right to require correction in member’s register.
3. Right to seek injunction (temporary stay) in cases of misconduct w.r.t affairs of a corporation.
4. Right to seek relief against oppression.
5. Right to vote and having their vote recorded.
6. Right to oppose decisions which in any way restrict or curtail such membership rights.