COML204: Prejudice Action & Attribution

Prejudiced Shareholders (s 174)

A claim brought by a current, former, or entitled shareholder when the company's affairs are conducted in a way that is oppressive, unfairly discriminatory, or unfairly prejudicial[cite: 11].

Section 174 Core Test

Focuses strictly on the impact on the minority shareholder, not the intent of the oppressor, and does not require proof of dishonesty[cite: 11].

Section 174 Remedies (Acronym: BRL)

If just and equitable, the court can Buy out the shares, Regulate the company's future conduct, or Liquidate the company[cite: 11].

Re HR Harmer Ltd [1958]

An elderly founder acted like a dictator, ignoring other directors; the court found oppression, stripped him of power, and ordered his shares bought out[cite: 11].

Thomas v HW Thomas Ltd [1984]

A grandson's claim of being "locked in" by low dividends failed because the conservative financial policy was commercially reasonable and a valid board decision[cite: 11].

MPML v Mike Pero [2016]

A director unilaterally giving himself a massive pay increase without the 50% passive shareholder's consent was held to be clear unfair prejudice[cite: 11].

Szekely v Muse on Allen Ltd [2017]

Following a fallout, a shareholder was excluded and diluted; the court ruled that exclusion without a reasonable offer to buy their shares at fair value is unfair prejudice[cite: 11].

Just & Equitable Liquidation (s 241(4)(d))

Used when there is a persistent failure to comply with duties, a deadlock, or an irretrievable loss of mutual trust[cite: 11].

Quasi-Partnership (Ebrahimi v Westbourne Galleries)

Small companies formed on mutual trust where everyone expects to manage; if that trust dissolves and a partner is excluded, it is just and equitable to liquidate[cite: 11].

Vujnovich v Vujnovich [1988]

Three brothers committed mutual oppression against each other; the resulting irretrievable breakdown and deadlock made it just and equitable to liquidate the company[cite: 11].

Indoor Management Rule (s 18)

Allows outsiders dealing with a company in good faith to safely assume that the company's internal rules and procedures were properly followed[cite: 12].

"Put on Inquiry" Exception

You lose s 18 protection if you knew or ought to have known internal rules were broken, usually triggered when a transaction brings huge risk to the company but zero benefit[cite: 12].

Northside Developments (1990)

A bank was put on inquiry and lost its mortgage because a director used company land to secure loans for his own personal businesses, providing zero benefit to the company[cite: 12].

Story v Advance Bank Australia (1993)

A bank was NOT put on inquiry because a mortgage signed by a director appeared normal and the money actually helped run a business operating through the company[cite: 12].

Old Criminal Attribution Rule

The "directing mind and will" doctrine, which problematically required courts to find the top "brain" of the company to attribute criminal liability[cite: 12].

Modern Criminal Attribution Rule (Meridian Global)

Rejects the "brain" search in favor of statutory interpretation: look at the law's purpose and attribute the knowledge of the specific employee empowered to do that job[cite: 12].

Meridian Global Funds [1995]

Empowered investment managers illegally failed to report a 20% shareholding; their knowledge was attributed directly to the company, making the company liable[cite: 12].