Oppression Process

Remedies for Oppression I

The remedies which the court may order where oppression or the disregard of interests is found are in the widest terms.  It has the power to make such orders as are necessary to end the matters complained of. Formerly, there was no express power to award compensation in consequence of oppression or the disregard of interests. The 2014 Act has confirmed the jurisdiction to grant an award of compensation.

The court may order the purchase of the petitioner’s shares for fair value. The fair value might be higher than the actual market value. There may be a compensatory element in the price.


Remedies for Oppression II

The court may order that the company purchase the applicant’s shares. It may order the purchase of the majority’s shares.  It may vary transactions. It may order the removal or appointment of directors.The company may be ordered to be wound up.

The court may prohibit any act, cancel a transaction or amend it.  It may make provision for the conduct of the company’s affairs in the future.  It may alter the constitution in such a way as may not be varied without the consent of the court.

For convenience below, oppression includes the unlawful disregard of interests, which is provided for in the same section, with which it overlaps and which opens the door to the same range of remedies.


Applicants I

The Companies Act defines the persons who may apply to the court on the basis of oppression or the disregard of their interests.  The persons concerned must be members of the company or their personal representative, in the case of a deceased member.  The Minister for Jobs Enterprise and Innovation may apply for an order in certain circumstances, following on the report of an inspector in relation to the company.

The member must usually be entered in the register of members and be the beneficial holder of the shares concerned.  It appears that a person who has agreed to dispose of his shares is not entitled to apply, even if he is still registered as legal owner.

Although the courts have indicated otherwise, it would appear in principle that a person who is beneficially entitled to shares, should be entitled to apply for relief from the consequences of oppression. Otherwise, in a bare nominee arrangement, both the nominee and beneficial owner would be precluded from the remedies. This would frustrate the purpose of the legislation.


Applicants II

The personal representative of a member may petition for relief. The personal representative of a deceased member may become registered as a member.  On the death of a director/participator in a small company, the other shareholders may not wish to allow the deceased representative successors to participate in the company.  This is not necessarily illegitimate in itself.  However, there may be oppression and unfair disregard of the shareholding rights in the circumstances.

The remedies for oppression are not available in respect of the conduct of the affairs of the company while it is in examinership.

A petition for oppression (and disregard of interests) may be taken by shareholders in relation to the conduct of the directors or a majority of them.  The company will not necessarily be a party. If it is a party, it may require separate representation.


Applicants III

Although the petitioner is usually a minority shareholder, this need not necessarily be so.  Shareholders agreements or special voting rights may give the minority enhanced rights in relation to particular issues. The exercise of these rights may constitute oppression or be unfairly prejudicial to the interests of the majority shareholder.

Applications based on oppression, are made primarily for the benefit of the shareholders. However, in many smaller companies, the shareholders will also be directors.  The Irish courts recognise that oppression may be suffered, both as shareholder and director in the case of small closely held companies.

If the parties have agreed on a procedure in a shareholder’s agreement and the petition is brought in breach of it, this may constitute an abuse of process.  Where the proceedings are taken from a tactical perspective and are not prosecuted, they may be struck out on the basis of a prolonged and excusable delay.


Petition for Relief

An application for relief on the basis of oppression is by way of petition. Proceedings can be protracted and expensive. They may be brought where the parties’ relationship has broken down, with a view to obtaining a settlement. Because the remedy is somewhat discretionary, the outcome of proceedings may be unpredictable.

An action for oppression may be heard, other than in public.  An application is required for a court order in this regard. An application based on oppression may be heard in private if the court is of the opinion that there might be a disclosure of information that will prejudice the interest of the company.

There is a presumption that the petition should be heard in public. An order that the case should be heard in private will not be granted unless the hearing of the proceedings in public would involve the disclosure of information which might be prejudicial to the company’s legitimate interests.  It may be that the hearing of part of the proceedings in private would be sufficient to deal with the legitimate interest concerned.

Third party discovery may be available against the company if it is not a party. The privilege of the company not to disclose legal advice may not be available against shareholders. Some courts apply the principles applicable as between trustees and beneficiary.


Procedural Issues

The threshold for the commencement of legal proceedings, including in the case of oppression, is relatively low.  An abuse of process or a vexatious or frivolous claim will not readily be shown in the absence of impropriety or patent misuse of the process.

A petition for relief based on oppression or disregard of interests may be brought for tactical reasons.  The minority may seek a settlement on the basis of alleged oppression. In many cases, this will be entirely legitimate. However, it may constitute an abuse of process.

As with court proceedings generally, it is possible to apply to strike out a petition for oppression/ disregard of interests as an abuse of process or as vexatious.  If it is issued without any good reason, it may be struck out.

The company will not necessarily be actively involved in the proceedings.  Orders may be sought against it so that in this case, it must be made a party.  In this case, it is likely to require its own separate representation. Where the dispute is in essence between shareholders, the courts will be reluctant to allow the company to bear the costs, unless they relate to the company in its own capacity.


Remedies I

Pre-trial remedies may be sought pending the hearing of the action. An injunction may be granted restraining the majority of the company or the board from removing a director or conducting a particular proposed transaction (e.g. the issue of shares), which is the subject matter of the complaint.

A range of remedies is open to the court, once it finds that there has been oppression or that the company’s affairs have been conducted in disregard of the petitioner’s interest. Where the requisite finding is made, the court has a broad discretion as to what order it may make.

Remedies may be granted to end and remediate the matters complained of.  The orders made must be effective.  As with equitable jurisdiction, the court will not wish to act in vain.


Remedies II

If an order is to be made for the purchase of the petitioner’s shares by another, that other must be party to the petition.  Otherwise, he cannot be bound by an order in the matter.

The company may be ordered to purchase the petitioner’s shares.  This must be lawfully possible.  The shares may be redeemed and cancelled.

The court has considerable discretion as to what order it may make, once it finds that there has been oppression or that the company’s affairs have been conducted in disregard of the petitioner’s interest.The circumstances will determine the appropriate remedy.

The court may order the purchase of the petitioner’s shares by the other shareholders. It may order that the company purchase the petitioner’s share. Exceptionally, it may order that the respondent shall sell its shares to the petitioner.

The court may require the appointment of a petitioner or another as director. The court may restrain the removal of a director. The Supreme Court has allowed this possibility, despite earlier case law which had held that this would cut across the shareholders’ statutory power to remove a director from office at will.


Remedies III

The court may involve the variation or cancellation of a transaction or of a proposed transaction.  It may involve reversing a transaction or arrangement which has occurred to the detriment of the petitioner. There may be an order to partition the businesses of a company with multiple interests/ branches or elements, where the business relationship has broken down.

Formerly,  no award of damages could be made.  Notwithstanding that an order for compensation was not available, an order for the purchase of the petitioner’s shares at fair value might compensate the petitioner. The 2014 Act expressly grants power to award compensation.

The court may order the reversal of a transaction or the effects of the transaction, which may have compensatory effects or elements.  The position is more akin to restitution than a breach of contract.

The courts are reluctant to make an order requiring the company to refrain from litigation.  This is so because of the general constitutional right of access to the courts.


References and Sources

Primary References

 

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)   Ch.11  Courtney

Keane on Company Law 5th Ed. (2016)Ch.26  Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Palmer’s Company Law