A common remedy sought by minority shareholders in oppression proceedings is a buy-out order requiring the majority to purchase the minority’s shares.
Bridging Capital Holdings Pty Ltd V Self Directed Super Funds Pty Ltd
The recent decision of the Federal Court in Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd [2021] FCA 1625 provides useful guidance for parties involved in commercial litigation concerning s 232 of the Corporations Act.
In this case, the plaintiff commenced proceedings seeking the appointment of provisional liquidators to the third defendant, or alternatively, the appointment of receivers and managers.
The shares in the third defendant were owned by the plaintiff, first defendant and second defendant. The plaintiff was a minority shareholder.
The parties soon agreed that the majority shareholders should purchase the minority’s shares at market value. A referee was appointed to provide a report as to the value of the minority shares. The referee provided two values for the shares; one applying no minority discount and the other applying a minority discount.
The plaintiff submitted that a minority discount was no appropriate in circumstances where the order for the purchase of the plaintiff’s shares had been made pursuant to s 233(1)(d) of the Corporations Act and following an application for relief on the basis of alleged oppressive conduct.
On the other hand, the first and second defendants submitted that the minority discount sought by them is only inappropriate after a finding of oppression. Oppressive conduct had been denied by those parties from the outset and, in their submission, the underlying reasons for the breakdown in relationship had not been determined. They said that since they were purchasing a minority shareholding, a minority shareholding discount should be applied.
The Court’s Findings
Stewart J reviewed the authorities and said that in a case where a minority shareholder has, in effect, had the sale of his or her shares forced upon them by the oppressive conduct of the majority shareholder(s), it is appropriate to not apply a minority discount.
Stewart J affirmed the approach of Nourse J in Re Bird Precision Bellows Ltd [1984] Ch 419, that being that in the case of a consensually ordered majority buyout of a minority shareholding in a quasi-partnership, a minority discount should not be applied unless it is established that the minority interests conducted themselves in such a way as to deserve their exclusion from the company.
Stewart J therefore concluded that a minority discount should not apply. It was relevant that the plaintiff had purchased his shares in the company very recently, and that there was no basis for the Court to ascribe blame for the falling out on any of the parties.
Takeaway
This case is a reminder that, in cases of oppression involving a quasi-partnership, the parties’ conduct leading up the falling-out will be relevant to the Court’s exercise of discretion under s 233.
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