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 personal or derivative action against Alisha and Diva.As per s. 234 of corporations act, 2001,

1. A member of company, even if the application relates to an act or omission against:

• The member in capacity, other than as a member,
• Another member in their capacity as a member,

2.A person who has ceased to be a member of the company, if the application relates to the circumstances in which they become a member.

With reference to above provisions, he can bring a derivative action  

b).

Ali can claim oppression under sec. 232 of corporations act, 2001

By virtue of corporate law economic reform program act, 1999(CTH), and sec. 232 and sec 233 of the corporation act, 2001,

Sec 232 provides, court may make an order under sec. 233,if

• The conduct of the company's affairs or
• An actual or proposed act or omission by or on behalf of a company or,
• A resolution or proposed resolution of members or a class of members of a compcompany,
• Is either contrary to the interests of the members as a whole, or
• Oppressive to, unfairly prejuficial to, or unfairly discriminatory against a member or members whether in that capacity or any other capacity.

Therefore, Ali can claim depression under sec. 232, with the above considerations.

C).

Available forms of remedies:

The court can make any under undersec. 233 of the corporations act, 2001that it considers appropriate relating to the company, including an order

• That the company be wound up
• That the company's existing constitution be modified or repeled
• Regulating the conduct of company's affairs in future
• For the company to institute, prosecute, defend or discontinue specified proceedings
• Appointing a receiver, and a receiver and manager of any or all type of company's property
• Restraining a person from engaged in a specified conduct, or by doing a specified act
• Require a person to do a specified act

As per the provisions stated above court may ask alisha and diva to revoke the resolution of removal of Ali as director or may appoint receiver to all the property for safeguarding it. further court may prevent company to act in any further specific acts Or may ask to discontinue from proceedings with new company. Finally, court may also wound up the company, if deemed to be appropriate.