BTF5955 · Business and Company Law
Members' Powers, Dividends & Remedies
Topic 9 covers the members' side of the company: types of meetings and resolutions (ordinary vs the 75% special resolution), the payment of dividends and the three-part solvency-style test in s 254T, and members' remedies — the rule in Foss v Harbottle, the statutory derivative action, and the oppression remedy (ss 232–233). Shareholder-grievance scenarios, especially oppression, are a staple of the open-book final's IRAC problems.
What this chapter covers
- 01Membership and shares: how membership arises; ordinary shares, preference shares, partly-paid shares; class rights and their variation (Gambotto v WCP)
- 02Members' meetings: the AGM (public companies, within 5 months of year-end — s 250N) and general meetings
- 03Calling meetings: directors, and members with at least 5% of the votes (s 249D); notice requirements
- 04Resolutions: ordinary resolution (simple majority, over 50% of votes cast) vs special resolution (at least 75% — s 9)
- 05Voting: show of hands (one vote per member) vs poll (one vote per share); proxies
- 06Dividends: the s 254T three-part test — net-assets, fair and reasonable to members, and no material prejudice to creditors
- 07Rule in Foss v Harbottle: the company is the proper plaintiff for a wrong done to it; majority rule
- 08Members' remedies: statutory derivative action (ss 236–237), oppression remedy (ss 232–233), and the personal action on the s 140 statutory contract
IRAC on the oppression remedy: profits diverted as 'consulting fees'
- +1Issue. Is the conduct of the company's affairs oppressive, unfairly prejudicial or unfairly discriminatory to Nadia as a minority member, so that she can obtain relief under the oppression remedy (ss 232–233)?
- +2Rule. Section 232 allows a member to seek relief where the conduct of a company's affairs, or an actual or proposed act or omission, is either contrary to the interests of members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member. The test is objective commercial unfairness, not mere disagreement. If s 232 is made out, s 233 gives the court wide discretionary orders — including ordering a buy-out of the minority's shares, requiring dividends, restraining conduct by injunction, or even winding the company up.
- +2Application — is the conduct unfair? Diverting essentially all the company's profits to the majority as 'consulting fees' while never paying dividends operates to exclude the minority from any return on her investment. Where the fees are excessive or are a device to strip profits that would otherwise be available to all members, that is the kind of commercially unfair conduct the oppression remedy addresses — the majority is using its control of the company's affairs to benefit itself at the minority's expense.
- +1Application — remedy; Conclusion. If Nadia establishes oppression, s 233 lets the court fashion an appropriate remedy: most commonly an order that Raj (or the company) buy out Nadia's shares at a fair value, but it could also require dividends or restrain the fee arrangement. Conclusion: the sustained diversion of profits to the majority to the exclusion of the minority is very likely oppressive under s 232, and Nadia's most probable relief is a court-ordered buy-out of her shares at fair value under s 233.
Key terms
- Ordinary vs special resolution
- An ordinary resolution passes on a simple majority (more than 50% of votes cast). A special resolution requires at least 75% of votes cast (s 9) and is needed for fundamental changes, such as altering the constitution.
- Dividend and the s 254T test
- A dividend is a distribution of profit to members. Under s 254T a company must not pay a dividend unless its assets exceed its liabilities immediately before the dividend (and the excess is sufficient), the payment is fair and reasonable to members as a whole, and it does not materially prejudice the company's ability to pay its creditors.
- Rule in Foss v Harbottle
- The proper plaintiff for a wrong done to the company is the company itself, and the majority generally rules on whether to sue. This 'proper plaintiff' rule is why individual members usually cannot sue for corporate wrongs — subject to the statutory exceptions.
- Statutory derivative action (ss 236–237)
- A procedure allowing a member (or director/officer) to bring proceedings on behalf of the company with the leave of the court, where the company itself will not act. Section 237 sets the leave criteria (good faith, best interests of the company, a serious question to be tried, and notice).
- Oppression remedy (ss 232–233)
- Relief for a member where the conduct of the company's affairs, or an act/omission, is contrary to members' interests as a whole or oppressive, unfairly prejudicial or unfairly discriminatory to a member. Section 233 gives the court wide orders, including a share buy-out, injunctions or winding up.
- Class rights
- Rights attaching to a class of shares (such as preference shares). Their variation is regulated, and there are limits on a majority expropriating minority shares (Gambotto v WCP Ltd).
Members' Powers, Dividends & Remedies FAQ
What is the difference between an ordinary and a special resolution?
It is the majority required. An ordinary resolution passes on a simple majority — more than 50% of the votes cast — and is used for routine members' decisions. A special resolution requires at least 75% of the votes cast (the s 9 definition) and is reserved for fundamental matters, most importantly altering the company's constitution. Knowing which threshold applies is often decisive in a problem about whether the members can validly do something.
When can a company pay a dividend?
Under s 254T a company must satisfy a three-part test before paying a dividend: (a) its assets must exceed its liabilities immediately before the dividend and the excess must be sufficient for the payment; (b) the payment must be fair and reasonable to the members as a whole; and (c) it must not materially prejudice the company's ability to pay its creditors. This net-assets-plus-fairness-plus-creditor-protection test replaced the older 'profits only' rule and protects creditors as well as members.
How is the oppression remedy different from a derivative action?
They address different wrongs. The statutory derivative action (ss 236–237) is for a wrong done to the company where the company will not sue — the member seeks the court's leave to sue on the company's behalf, and any recovery goes to the company. The oppression remedy (ss 232–233) is for conduct of the company's affairs that is unfair to a member personally; the court can make wide orders in the member's favour, most commonly a buy-out of the oppressed member's shares. Foss v Harbottle steers a corporate wrong toward the derivative action, while personal unfairness points to oppression.
Can Sia help me with members' powers and remedies problems?
Yes, as a study aid. Sia can walk you through the resolution thresholds, the s 254T dividend test, and the difference between a derivative action and the oppression remedy on fresh facts, and check whether your IRAC answer matched the wrong to the correct remedy. It explains the method and checks your reasoning; it does not do your graded assessment, and Monash academic-integrity rules apply.
Exam move
Topic 9 is best learned as a decision tree for shareholder grievances. First, distinguish the type of wrong: a wrong to the company points (via Foss v Harbottle) to the statutory derivative action (ss 236–237, with s 237 leave criteria), while personal unfairness points to the oppression remedy (ss 232–233, with a share buy-out as the usual order). Memorise the resolution thresholds (ordinary over 50%, special at least 75%) and the three limbs of the s 254T dividend test, because these are quick, high-value marks. Recognise the classic oppression fact pattern — excessive director salaries or fees that starve dividends and exclude a minority. Practise on fresh scenarios by writing visible IRAC answers that name the section and match it to the remedy. When a step won't click, ask Sia to explain it a different way and to set you a fresh members'-remedies problem; it teaches the method and checks your reasoning, and it never substitutes for your own graded work.
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