Question

Alisha and Diva are the directors and shareholders in Flowers First Pty Ltd. They have been having cash flow problems with respect to acquiring a third vehicle (with equipment) to expand their business. They approach Ali to invest in Flowers First Pty Ltd. Ali has offered to invest $100,000 into Flowers First Pty Ltd on the basis that he will be issued with 50 Ordinary shares in the company (equating to 20% of the Company). At a general meeting of shareholders Ali is appointed non-executive director of the company.

Flowers First Pty Ltd’s cash flow position has improved as a result of the investment from Ali, and substantial profits are earned in the following two years. Ali becomes aware that Alisha and Diva have increased their salaries as executive directors (CEO and CFO) and have also declared bonuses to themselves. Ali becomes concerned that no dividends have been declared and at the next board meeting raises his concerns including his objection to the increase in directors’ salary. Alisha and Diva took offence to this an actioned the following:

• At a directors meeting (no notice provided to Ali) a resolution was passed to assign a recent RSPCA contract to a new company formed by Alisha and Diva as the sole shareholders.
• Alisha and Diva then called a General meeting with shareholders (no notice provided to Ali) and resolved that Ali will be removed as director of the company.
• At the General Meeting of shareholders, the director’s decision to assign the RSPCA contract was ratified by the shareholders with a vote of 80% (Ali not being present).

Ali comes to you with the following questions. You are required to answer:

a)         Can Ali bring a personal or derivative action against Alisha and Diva, and what should Ali consider in making this decision?                                                             

b)         If Ali brings a personal action, should he bring it under the general law or make an oppression claim under s 232 Corporations Act 2001 (CTH)?                       

c)         What remedies should Ali seek?

Answer 1

a). Yes, Ali can bring a derivative action against Alisha and Diva, under the following circumstances:

As per section 232, 233 and 234 of corporations act, 2001,with reference to corporate law economic reform program act, 1999(CTH),

A member of company, even if the application relates to act or omission against the member in capacity, other than as a member or another member in their capacity as a member. Therefore, ali can bring derivative after considering above provisions.

b). Ali can claim oppression under section 232 of the corporations act, 2001,by virtue of (CTH), together with sec 233.

Sec. 232 provides that court may make any order under section 233,if

1. The conduct of the company's affairs or an actual or proposed act of omission by or on behalf of the company or
2. A resolution or proposed resolution of members or a class of members of a company
3. Is either contrary to the interests of the members as a whole
4. Oppressive to, unfairly prejuficial to or unfairly discriminatory against a member or members, whether in that capacity or other capacity.
5. Since the conduct of company's affairs are against Ali's interest, he can claim oppression under sec. 232.

C). Available forms of remedies:(sec. 233):

The court can make any order under sec. 233 that it consider appropriate including the orderorder

1. That the company be wound up
2. That the company's existing constitution be modified or repeled
3. Regulating the company's conduct in future
4. For the company to institute, prosecute, defend or discontinue any proceedings
5. Appoint a receiver or a receiver and manager to the company's all the property,
6. Restraining a person from engaged in a specified conduct or in a specified act.
7. Require a person to do a specified act

With regards to above provisions, court may wound up t he company or prevent alisha and diva to proceed further with new contract and make diva and alisha revoke the resolution of removing Ali as a director(without his notice) and prevent alisha and diva from carrying out specified acts further and even may arrange manager against all the property of the company