What Is Shareholder Oppression? A Guide for SME Shareholders

Small and medium businesses often start as close‑knit ventures between trusted business partners. Over time, differences in vision, financial pressure or personal disputes can sour these relationships, and shareholders can begin to use their control to exclude or mistreat other shareholders. The law labels this kind of behaviour as oppressive conduct.

If you are a shareholder of a small or medium enterprise, there are a range of internal mechanisms and appropriate dispute resolution processes that you can rely on to remedy oppressive conduct by other members. The Corporations Act 2001 (Cth) also enables the Court to intervene when a company’s conduct or proposed actions are contrary to the interests of the members as a whole or is oppressive, unfairly prejudicial or unfairly discriminatory against a member or members of a company.

Understanding what constitutes oppression and the remedies available to you is critical. By acting quickly, you can prevent further harm and protect the value of your investment. This article explains what oppressive conduct is, outlines the steps you can take to resolve disputes with other shareholders, and summarises the remedies available to victims of oppression.

What is shareholder oppression?

Oppressive conduct occurs when a company’s affairs are managed in a way that harms the interests of members or unfairly disadvantages particular members.

Under the Corporations Act, conduct or proposed conduct is oppressive if it is:

• contrary to the interests of members as a whole; or

• oppressive, unfairly prejudicial or unfairly discriminatory against a member or members.

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Oppression can arise from the conduct of a company’s affairs, an actual or proposed act or omission of the company, or a resolution (or proposed resolution) of members. While minority shareholders are commonly affected, majority shareholders may also experience oppressive conduct.
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Common indicators of oppression in SMEs include:

• receiving little or no financial or strategic information;

• exclusion from meetings or operations without justification;

• excessive remuneration or unfair related‑party transactions;

• diversion of business opportunities or assets to controllers or related entities;

• withholding dividends without proper basis;

• removing a director or cancelling shares without complying with the Constitution or the Corporations Act;

• forcing an unfair exit or diluting shares without proper purpose; or

• passing resolutions aimed at entrenching control rather than advancing the business.

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What to do about oppression?

‍Step 1 – Review the shareholders agreement and constitution

The first step in responding to potential oppression is to review the shareholders agreement and the company’s Constitution. These documents operate as contracts between members and typically include governance rules, exit mechanisms and dispute resolution procedures.

Courts often expect shareholders to follow any agreed dispute resolution processes before beginning litigation. Claims have been stayed or dismissed where shareholders failed to follow these processes, even if doing so did not ultimately resolve the dispute.

If there is no shareholders agreement, or if it does not address dispute resolution, the Constitution and the Corporations Act govern the process. Shareholders are generally expected to follow these procedures before seeking statutory relief.
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Step 2 – Explore negotiation and mediation  

Before approaching the Court, parties should consider negotiation or mediation. These processes can reduce the cost, formality and publicity of Court proceedings, allow for commercial outcomes and help preserve working relationships.

Accountants and advisors can support clients by:

• preparing accurate financial information;

• modelling potential settlement options; and

• identifying cash flow and tax impacts of possible scenarios.
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Step 3 – Engage the statutory regime

If internal processes and alternative dispute resolution do not resolve the issue, shareholders may seek relief under the Corporations Act.
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Who can bring an oppression claim?

Section 234 of the Corporations Act permits applications by:

• current shareholders;

• former shareholders (if the application relates to their removal);

• persons removed from the register of members;

• persons to whom shares have been transmitted (for example, through a will); and

• persons nominated by ASIC.
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What orders can the Court make?

If oppression is established, the Court has wide powers under section 233 of the Corporations Act, including to make orders to:

• wind up the company;

• amend or repeal the Constitution;

• regulate the company’s future conduct;

• require the purchase of shares at fair value;

• require the company to commence or defend proceedings;

• appoint a receiver; or

• restrain or compel certain conduct.

The Court generally aims to make the minimum orders necessary to remedy the oppressive conduct. Winding up a solvent company is considered a last resort.

If you are experiencing shareholder oppression, or believe your interests as a shareholder are being unfairly affected, our commercial team can assist. Please contact us to discuss your options.