No oppression: Supreme Court rejects a minority shareholder’s claim of oppressive conduct by majority shareholders

Abstract

In the recent decision of Premier Aviation Holdings Pty Ltd v Mackay [2022] VSC 416, Premier Aviation Pty Ltd (Premier) sought relief in the form of a buyout of its shares on the basis that it was subjected to oppressive conduct by the majority shareholders, pursuant to section 232 of the Corporations Act 2001 (Cth). The Supreme Court of Victoria dismissed the proceedings.

Skytraders Pty Ltd (Skytraders) was an aircraft operator who provided air transport services to Commonwealth and State government departments.

Mr Vickers, through his company Premier, held approximately 30% of the shares in Skytraders and was its director from 2003 to 2019 and head of operations.

Mr Mackay (the CEO of Skytraders) held 41% of the shares through his entity Scarp Nominees Pty Ltd (Scarp) and 10% in his personal capacity.

Following a breakdown in the professional relationship between the two shareholders and their respective directors, Mr Vickers was removed as director and head of operations of Skytraders.

Premier brought proceedings against Scarp (and others) for oppressive conduct contending, among other things, that:

• Mr Vickers had a ‘reasonable expectation’ that he would be entitled to a seat on the board and that he would be solely responsible for all operational matters within the company; and
• the cessation of Mr Vickers’ operational role and his removal from the board constituted oppressive conduct.

On the basis of the alleged oppressive conduct, Premier sought one of the following alternate orders:

• that the other shareholders of Skytraders purchase Premier’s shares in Skytraders; or
• that Skytraders be wound up.

Decision

The Court found in favour of the defendants, making no finding of oppressive conduct.

Reasonable expectation of directorship

The Court held that although it was reasonable for Mr Vickers to expect a seat on the board in the beginning of the commercial relationship, it ceased to be reasonable during the later years when he and Mr Mackay were no longer amicable. Furthermore, changes to the operational and commercial roles within the company were inevitable and necessary to develop and remain competitive in the industry.

Importantly, the Court noted that whether or not Mr Vickers had a reasonable expectation to remain on the board, does not answer the question whether or not the conduct of the company was oppressive. The existence of agreements or understandings between persons who join in corporate enterprises are matters of context in which the oppressive conduct complained of, is to be assessed. Just as conduct can be oppressive even if it does not contravene any agreement, or disappoint any understanding, conduct which does do so is not, necessarily, oppressive.

Cessation of operational role within the company and removal from the board

The Court held that whether he intended to or not, Mr Vickers had by his actions objectively communicated to Mr Mackay that he was planning to resign from his position as operational manager (such as by completely vacating his office at the company’s premises).

Further, the Court also held that in circumstances where:

• Mr Mackay and Mr Vickers could not work together as board members;
• Mr Vickers had made threats in relation to the operations of the business;
• Mr Vickers was publicly undermining the CEO; and
• Mr Vickers was preparing to take legal action against the majority shareholder and/or the company,

Mr Vickers could not have continued to hold any reasonable expectation that the majority shareholder would refrain from exercising rights under the constitution to control the composition of the board.

In the circumstances, the Court found that neither Mr Vickers’ removal from the board nor the removal of him from his operational role, constituted oppressive conduct.

Important takeaways

A mere expectation of being a director of a corporation may not be enough to trigger oppressive conduct as against a shareholder where his or her removal as a director is undertaken by a majority shareholder simply exercising its rights as a shareholder.

When considering whether or not conduct is oppressive or unfair, courts will look at the objective state of affairs as it relates to the parties.

It follows that shareholders and directors should endeavour to avoid falling into the trap of relying on the initial intentions of the parties and express their intentions in writing to assist in protecting against undesirable outcomes in the event of a professional relationship breakdown.

Queries

For further information please contact an author, or any member of our Corporate & Commercial team.

Disclaimer

This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.