The Shareholder Oppression Regime: Strategy, Process and Outcomes

0:00
You're listening to Explain That by Velocity Legal, the podcast that keeps business owners and professional advisers ahead of the curve in an ever-changing legal landscape.

Co-ownership in private business in Australia is increasingly common.

0:16
Situations that co-owners of businesses face are being kicked out of a business or trying to kick someone else out of a business.

Today I'm joined by Associate Daniel Urbans and Senior Associate Lauren Gross, and we'll be talking about shareholder oppression.

0:32
How do you exit someone from a business? What are your rights? What's the court process? And how do you get out of it as smoothly as possible?

So firstly, welcome both to the show.

Thank you.

Thank you, Andrew.

All right. Well, I guess let's start with a bit of a Dorothy Dixer 101.

0:49
I mentioned oppression. We're talking about co-ownership of businesses. What is oppression?

Well, it's basically unfairness, but not just simple unfairness.

So if you're being treated in a way that you don't like, you're a bit annoyed, that's not enough to get there.

1:08
Equally, there can be decisions that are against your interests that are made by the other party that are unfair.

But it has to reach that standard of being commercially unfair.

And that's the standard of a bystander who has the same kind of knowledge of someone within that industry and in that company.

1:25
Yeah. So it's got to be unfair, but more than just unfair. So some sort of standard higher than that?

Yeah, more than just being a bit unhappy.

And there's lots of cases that point that out and make that quite clear.

Yeah, there was a case, I think it was last year, and it was a Sleeping Duck case.

1:41
So yeah, anyone listening, they do amazing mattresses.

Yeah, yeah, I've got one.

Yeah. But behind the scenes, there was some conflict in the company, and there were the people who started the company. They were the majority shareholders, and then there was a minority, and that minority had less than 10%.

1:58
When it got to court, the minority shareholder was saying, look, I've been oppressed. I've been shut out of the company.

The reason I've been oppressed is because at the beginning, we all had a common understanding between us that I would play an active role in managing the company.

2:14
And then all of a sudden I've been pushed out as the business has got more successful. I wasn't playing that active role. I was just kind of on the sidelines.

And then they also diluted my shareholding.

So he owned 10% at the beginning. That was all fine for a couple of years.

2:30
And then the other investors, they introduced an employee share plan, and they had this other kind of rockstar employee. They gave them shares, which in turn meant the minority went down from 10%.

And he said, hey, that's oppression.

That is kind of an established example of oppression, someone diluting them.

2:47
But the reason he was not successful in arguing oppression is because he couldn't prove to the court that his common understanding was that he would be active and that his shares wouldn't be diluted.

So the other people were saying, well, actually we told you about the employee share plan and you agreed to it.

3:03
And there was evidence that he had.

So you can't turn around later and say I'm not happy with what's happened, and I was under the impression that this is what would be going on. That's not enough.

If you only had it inside your own head, there had to be a shared understanding of everyone in the company that that's how it would run.

3:24
And that's when documenting is helpful, because then you can actually point to something and say, hey, we all agreed on this.

If you don't have that, it's quite difficult.

And I suppose, you know, it can be a bit of a he said, she said situation where it's very easy to set up a company, go into business together, start running, and there's just not much documentation.

3:44
And I'm sure, Daniel, you would see this in the litigation side, that one party says, oh, this was the deal. And the other one says, no, no, no, it was completely different.

And it's like, well, how were you both working together at one point?

Yeah, it's definitely something we see more often than not in shareholder oppression cases.

4:07
It's often the people that, they're the last ones that they thought they would ever have been in this situation.

You know, they could have been best friends or business partners for years. And all of a sudden, there's a fallout, and there's a number of reasons why it could be.

And sometimes it could be for no reason whatsoever. Someone just decides, I'm going to start my own thing, or yeah, I don't want to do this anymore.

4:27
And one person will stop contributing to the business.

Dilute their shareholding, I think.

Yeah. There's lots of examples of oppression.

Yeah. Like you said, that's such a common thing, right?

We have clients all the time and they often say to me, I never thought they would treat me like this, or they're a different person.

You know, 10 years ago when we started, they weren't like this.

4:42
Yeah. And that's natural because we've all had relationships break down.

It's almost like a relationship breakdown for a family.

Yeah. It's like your partner or your friend or family, and it's no different in business.

Business isn't exempt from those kind of human things that happen.

4:59
And sometimes it's unavoidable. You just can't do anything about someone having a complete personality transplant.

But there are kind of steps that you can take to mitigate the risk.

And I think a big one is, at the beginning, choosing a business partner wisely, which, you know, it's kind of hard.

5:16
Yeah.

But also there's some things like having those tough conversations up front.

I think, yeah, I think a lot of people kind of shy away from having the unpleasant conversations of, okay, what happens if this doesn't work out and what do we do then?

Do I want to grow the business? When we're working in the business, what am I going to do versus what Daniel's going to do, being on the same page?

5:37
Because a lot of the time people are on very different pages, and one person ends up doing all the work and the other person's kind of sitting back doing not much at all.

But you're still getting equal dividends if you're equal 50% shareholders, and the person who's working hard, that rubs them the wrong way.

5:53
Understandably so.

Yes, understandably.

And if you have those conversations, maybe have a shareholders agreement, that helps a lot.

Yeah.

One question I wanted to ask is taking a step back, we talked about shareholder oppression.

I guess I want to ask the question why. Why do these provisions exist? What's the mischief that they're trying to deal with?

6:11
So I think it's people using their control over the company to treat the other one commercially unfairly.

Because oppression, normally, it's most common when it's the majority using their power to shut out the minority.

6:30
Yeah, it doesn't have to be that way. You can still be oppressed if you're the majority.

So the minority can oppress you, particularly when there's things like shareholders agreements or constitutions which contractually vary the power that they have.

Yeah.

So even if you're listening to this and you're the 90% holder and you think you're being oppressed, you might be, and you could still have a right under the law to protect you.

6:53
But usually it's the person that kind of has more control that's shutting the other person out.

And the reason oppression remedies exist is because it's not appropriate for someone to invest into a company and then the other person kind of take their capital and then treat them in a way that the law recognises as being a step too far, and then it's unlawful conduct.

7:14
Maybe this is a decent analogy, and I just thought it up, that a company is sort of like a democracy, that whatever 51% voting gets across the line.

But also in democracies we have levels of rights and things that you can't kind of get out of.

7:31
And this is sort of like that for shareholders, I guess?

Yeah. And I think there are still examples where you kind of won't get your way, and that's not enough to be entitled to a remedy under the oppression regime.

Like there's a case. So usually oppression cases don't go all the way to the High Court.

7:49
Normally they're settled before that. But there are two cases that did go all the way.

One of them is the Wayde case. And in that case, it was a rugby league.

So there were lots of different teams within the league. And the league was finding that it was too dangerous because the number of teams were too high and players were being injured as a result.

8:07
So what they said was, well, unfortunately someone's got to get the chop. And that was one team, Wests.

And then they argued that was oppressive, them being kicked out of the league.

The court found it wasn't oppressive.

And they recognised that there was a detriment to Wests, obviously, but that didn't reach the standard of being commercially unfair.

8:24
It was perhaps unfair, but it wasn't commercially unfair because they had a legitimate business reason for making that decision.

So the law recognises that companies need to be run in a certain way, and there's lots of considerations that the board of directors need to take into account.

8:40
And those decisions might be unpalatable to a shareholder.

That is not enough.

But it's really kind of the nasty behaviour of things that are not permitted.

Like if Daniel and I were in a company together, we're both 50%. I was only paying myself dividends and none to Daniel.

8:56
The court says you can't do that.

Yes, they're the kind of things that you are entitled to a remedy for.

Yeah. And let's say you're acting for that aggrieved shareholder that feels like they've been hard done by. You've then assessed, worked out, okay, I think there's some grounds here.

There's maybe there is, maybe there isn't, and you work out that there are.

9:14
Well, Daniel, what do you do as the next step from there?

Yeah. So obviously there's the option to go to court, but you really want to make sure you've exhausted all other options beforehand.

So the most cost effective way to deal with it is if you can deal with it internally, between the directors and the shareholders, at the time that the dispute arises.

9:36
And quite often, a resolution can be achieved, and quite often it can't.

It's a bit of a last resort. But we say it's the last resort, but it does happen quite a lot when there's been a breakdown in the relationship or something along those lines has happened that has caused this distrust, or there are issues in the operation of the company.

9:54
A shareholder might find themselves with no other option than to commence an application with the Supreme Court to effectively request a remedy or an order to put an end to that oppressive conduct.

And that's when you start moving into the more litigious side.

Failed to resolve it, now.

10:11
That's right.

You know it's going into the court's hands.

That's exactly right, yeah.

Lauren, we were talking before the show about the, I believe there's a special shareholder oppression list.

Can you walk me through how that works and why that exists?

So I think oppression cases have been a lot more common over the past few years.

10:31
So we're seeing, at least in our practice, we're getting a lot of dispute matters coming through with shareholder oppression.

And that's not just limited to our firm. It's kind of across the board.

So in Victoria, the Supreme Court has responded to that increase in demand by creating their own specialised list solely for oppression matters.

10:50
I might throw to Daniel as the litigator to walk us through how that list works.

Yeah. I guess before I go into how that list operates and the differences between the changes that were made within that oppression proceeding program, it's probably good to understand why it was that they introduced it.

11:08
So Lauren mentioned before that there's a lot of these cases, a lot of shareholder oppression cases. They're constantly coming up through the courts.

And the issue is a lot of them are small businesses or small to medium sized companies.

And the value of the shares and the value of the claim is not really that high.

11:25
And so what was happening was people were going to the courts to get a remedy, and they'd be getting bogged down straight away in the legal costs.

You'd have to put on an application supported by long affidavits. There'd be huge document discovery tasks, and often the value of the claim was being exceeded by the legal costs before the parties had even really got very far.

11:49
Yeah, exactly.

So I think the Supreme Court in about 2019 acknowledged that this was a problem. How are we going to resolve this?

And they came up with this streamlined process that was a bit of a test. It was a bit of a testing program. They tried different things over a few years, and eventually they got to where we're at now.

12:06
So how it starts off is the aggrieved party has to put in an application seeking relief, and that relief is generally under section 233 of the Corporations Act, which gives the court wide powers to effectively come up with a remedy.

12:23
So they put in their application.

Now, that has to be supported by a no more than three-page affidavit. And this is where that streamlined approach really starts coming in.

Because what it means is that the parties and the lawyers have to get down to the key issues.

It's got to be condensed down, not just hundreds of pages of nonsense.

12:40
Exactly right, which is what it often was beforehand.

And because there was all that other nonsense in there, there were documents supporting that and it would just go on and on and on.

So that is a big change they made, and that really streamlines that initial process.

So you'll serve that on to the other shareholder or shareholders if there's multiple of them.

12:57
And then effectively the proceeding will start and it will go to a judge, and a judge will make a decision to determine whether it's eligible for the oppression program.

And if it is, it gets very quickly sent to one of the judicial registrars or an associate judge.

13:16
And what they make the parties do is they actually bring all the parties in. They say you have to be here in person.

And it's almost kind of like a bit of a scare tactic to say, this is the reality of the situation. This is happening. This is how much it's going to potentially cost. Do you really want to go ahead with this?

13:32
Yeah. And that's often when the parties will be like, oh, this is happening.

People can change their tune.

They change their tune to settle before they say no. I'm not open to a resolution, all of a sudden they might be.

Spent so much already to get to this point.

13:48
They've realised that business is stalled or something. And then they see this whole pathway mapped out that's not really good for anyone other than lawyers.

Exactly.

That might change their reasoning.

That sounds like a pretty good approach.

14:03
And have you seen some success in that, in that sort of bringing people together at that stage?

Yeah, definitely.

So we've had, it really comes down to the particular circumstances. Quite often it is successful.

Generally we find that the majority of our matters will all sort of come to a settlement agreement prior to mediation or at that mediation.

14:22
So majority of the cases, that's where they'll end, and an agreement will come from the mediation.

And the good thing about the oppression program is the court's goal in that initial mention hearing that they have is to get to that mediation as soon as possible.

They might make an order for documents to be produced.

14:39
But if they do that, they're very specific about it. What documents?

Because we've had cases before where there's an order for books and records of the company, for production of them.

And all of a sudden there's fights about, well, what are the books and records? Does it include access to the accounting software? And that can go on for months.

14:55
So they try to be very specific about it and get you to that mediation as soon as possible.

Yeah. And that's good.

And what do you normally see the outcome of those mediations being? My understanding is that they go all day, maybe to midnight sometimes.

But yes, you can get to a settlement hopefully.

15:14
Or if you can't, then at least you've exhausted all the options there.

Yeah. I think the good thing about the mediation is it's an opportunity for the parties.

They really have this broad flexibility to resolve the matter however they choose because if it doesn't settle and then it does end up going to a trial, it's really in the judge's hands as to how it's going to happen.

15:38
So this is one of the key opportunities for the parties to really say, let's get this done now.

The most common outcome we find is that the majority shareholders will buy out the minority.

Yeah, that's generally what happens.

Yeah. And sometimes you have situations where the majority will say, I'll buy out your shares.

15:58
This is how much I'm willing to pay.

Yep.

And then the minority shareholder will go, well, if that's what you think the shares are worth, I'll buy yours out.

And sometimes you have a bit of back and forth.

Yeah, yeah.

But yeah, we've had some late night mediations, but we've got there in the end.

So I think it just comes down to price really.

16:13
Is that fair to say?

I think that's the case, yeah, most often.

And I think sometimes there are arguments, both people want to keep the company and we can't agree on who's actually exiting.

Most of the time though, it's about the value.

One person's kind of had enough and they want to leave, yeah.

16:30
And the other person wants to regain control.

And then it comes down to value.

I think something I'd say, just explaining for people listening how a settlement agreement works or what it is.

So clients are often kind of concerned about initiating proceedings.

But just because you initiate proceedings, it doesn't mean necessarily that it will go all the way to hearing.

16:55
As Daniel was just saying, there's multiple opportunities throughout to settle.

And that just means you and the other party agree.

Yeah, I'm exiting the company. Daniel's remaining. He's going to pay me 500 grand on this date. That's it.

And we walk away and we document that properly so that it's recorded in the deed of settlement.

17:16
Because people are often quite worried. They don't want to go to a hearing and they've seen it on TV and it's scary.

And they say, am I going to have to talk?

And the answer is it'll be okay. We're supporting you the entire way.

In mediation, sometimes people are quite concerned about facing the other party because things have really disintegrated in the relationship, and you might have to see them.

17:31
But often in a mediation, we separate into separate rooms.

Our side's in a room, the other side are with their lawyer in a separate room, the mediator can come between.

So it's okay if you do find yourself in this unfortunate position. We do support you throughout and you are kind of protected in a sense.

17:48
Yeah, in a hearing you probably will have to speak at some point, but we'll be with you the entire time, and hopefully it resolves before then because they usually do.

And disputes are stressful of any sort. I mean, they just suck the energy out of you. They're costly as well, but they're also extremely mentally draining.

18:05
I'm sure you've seen that with clients when you get to the end, that it's sort of a different person almost.

Especially if you're the person who's remaining in the business and you're still running the business while this thing is going on.

It's not like the business stops trading for a year.

18:20
You're still working in the business, and that's taking up a lot of time and energy, which is in a positive way of growing the business.

But a lot of your time and energy is being taken up in this negative thing and dealing with this dispute.

And I don't know if you find the same thing, but a lot of my clients, they get really stressed and anxious, which I would be the exact same.

18:37
They can't sleep, they can't exercise, they can't eat properly.

It's not a nice situation to be in, but sometimes it's inevitable.

And if you look at it in a positive sense, at least there is a regime that will help you.

You know, the oppression regime is about people having rights under that regime to protect them when they are being oppressed, when they're being treated unlawfully by someone.

18:59
So even though it's an unfortunate thing to go through this court process, it's a remedy that's available to you if you have no other option.

And you don't need a shareholders agreement too.

So often a shareholders agreement is useful in a dispute.

But just because you don't have a contract, it doesn't mean you're fresh out of luck.

19:18
You can have an oral agreement and you can still have that protection under the oppression regime.

Yeah, yeah.

And we're talking about oppression claims. But is your experience in reality that there's often a number of different claims and they're all sort of merged together, and there might be an employment claim and a confidentiality claim and something else?

19:40
Directors' duties.

Directors' duties, yeah. It all comes together.

But it sounds to me like the oppression one is like a fast track forward sometimes to resolve an umbrella of things, at least through this list.

19:57
Yeah, well, it's the strategy of the particular case, like Daniel was saying.

So usually oppression is probably the most common one, but there might be times where you want to seek relief in a different jurisdiction, like the Federal Court.

Yeah. I mean, you might be thinking, well, the Corporations Act is federal legislation, so why are we going to the state Supreme Court to prosecute these?

20:14
And the reason you might go to the Federal Court is because you might also have issues relating to other federal laws such as intellectual property, competition law.

And if there are multiple issues that extend just beyond the standard oppressive conduct, you really want to be able to ventilate those issues all in the same proceedings.

20:32
As opposed to the Supreme Court. And it might be the dollars involved as well, potentially. Is that a factor too?

Yeah. Well, ultimately the cost of going for the shareholder oppression program in the Victorian Supreme Court generally comes out slightly cheaper just because there's that streamlined process, assuming you can get to a mediation and get it resolved pretty quickly.

20:52
If you have to go to a trial, the costs can stack up.

But like we said, we often see these cases getting resolved before that happens.

One thing we talked about earlier, Lauren, was those preventative steps early on, which were have those hard conversations, do a shareholders agreement, all of those type of things.

21:13
What would your advice be if you do get more to the pointy end where it's clearly these shareholders are not seeing eye to eye and they're not going to, and it's going to have to be one or the other or some way out?

What would your advice be at that point?

21:30
The biggest tip is don't just bury your head in the sand and hope it will go away.

Yeah.

Which I think is the thing that clients do a lot. And understandably, right? Like we were talking about before, usually there's a strong relationship there, or there was.

And people like to avoid conflict and they don't want to ruin the relationship.

21:49
And there's a lot of trust there, or there was.

So people will kind of start to notice strange things happening, but they'll just keep carrying on.

I think that's a big mistake that people make.

So in this kind of scenario, if we're in a company together, sometimes clients will say, oh, Daniel, you're better at this than me.

22:08
You run it and just let me know if anything important shows up.

Usually when people don't have anyone watching, that's when bad behaviour tends to happen.

And Daniel could be doing anything and I'd have no idea.

And then it's hard three years later for me to turn around and say, hang on, where's all the money gone?

22:24
And realise that Daniel has been enjoying the company bank account and taking it all for himself.

That happens all of the time.

So I would say if you're in business with someone, make sure you're in the business. You've got access to the bank accounts, you're looking at what's being submitted, meeting with the accountant, all of that kind of thing so that you know what's going on.

22:44
Even if the other person takes more of a hands-on role.

I think just you being there watching and them knowing that you're watching encourages good behaviour.

It's a human temptation sometimes that people get greedy whether they realise that there's no one looking over their shoulder or something.

22:59
Or they do a little bit and get away with it, and then it encourages them to do a bit more.

And then before you know it, things have really hit the fan.

Yes. I think getting advice early, if you do think that something nefarious is going on, is a good place to start.

And then as Daniel was saying before, if you get it early enough, it's more likely that you can resolve it.

23:19
So instead of going to court, we might be able to do things like kind of give you advice behind the scenes to enable you to have a direct conversation with them.

Or maybe we could do something like you hold a shareholders meeting.

So you call for a meeting and you have these proposed resolutions that you want to make.

23:37
There might be things that we can do to avoid the situation blowing up completely, or negotiate some kind of exit for you before it really goes terribly wrong.

Sometimes the lawyers getting involved can kind of blow things up further.

But if they're sort of in the background making sure that it's not going off track, then that's possibly a good strategy.

23:58
Yeah, sometimes we do things like that.

So we might ghost an email. So we'll write the email, but the client will actually send it, so the other party doesn't know that we're involved.

Yeah, sometimes. Equally though, we want them to know we're involved.

So it really is a strategic call, and it depends.

24:13
Sort of like when AI writes an email, you kind of know sometimes.

Yeah, well, it's probably drafted this.

I say to the client, yeah, like change it into your tone of voice. But often they just send it exactly how I've written it. I'm like, well, I tried.

But there's other things you can do too.

Like under the shareholders, sorry, under the Corporations Act, shareholders have certain rights to information.

24:34
So if you're a director, you have more rights. So as a director, you should be seeing everything.

And if you're asking the other party for copies of the financial statements, they need to give it to you.

As a director, if you're a shareholder, you have less rights, but under the Corporations Act you do have the ability to apply to the court to access the books and records of the company.

24:52
So sometimes that's a good leverage.

If someone's refusing to hand them over, you can rely on that.

And if they're refusing to give you access to documents, particularly when you're a director, it probably improves your oppression claim as well.

Yeah, it's another strike, right?

Yeah, yeah.

So it can be good to ask those questions in writing so that you've got a copy of their response to you.

25:13
And then later on, if you do get the lawyer to write, you can say, excuse me, look here. And it's kind of building your case against them.

Question for you, Daniel.

Let's say you're preparing for a mediation or something similar to a mediation. What are you telling the client to do in preparation for that?

25:31
Is it getting valuations or working out best case, worst case? What's your sort of advice when getting ready for those mediations?

Generally prior to the mediation you'll usually have a valuation.

The court often, in that initial mention hearing that I was referring to, they might order a joint expert report.

25:50
Sometimes parties might seek to have an independent expert valuation to determine the value of the shares.

And really having an understanding of what that value is, is probably the most valuable thing you can do going into the mediation.

But in saying that, just because an expert says this is what the company's worth, or what they think the company's worth on paper, is not always what you or the opposing party might think that the company is actually worth.

26:18
And at the end of the day, while these valuations can be quite accurate, you're the one running the company.

So you know what it's worth. You know what the value of those shares is, or should be, or at least you think you do.

So it's important to consider what that is, but also to consider what the other person thinks that the value of those shares is worth.

26:35
And you really want to go in and, if you know that you're going to be being bought out or you're going to buy out the other person, have a number in your head on what you think that number should be.

And really have a think about what it's worth to you to move on and to get rid of this thing.

26:54
Would I accept a little bit less just to move on and not have to deal with the stress of this?

Because often in mediations it can get a little bit uncomfortable. You think, oh, this is not quite what I wanted or this is a little bit more.

But sometimes you really have to think about that beforehand because it's often how it goes down.

27:13
And probably part of your advice is about, well, what if it doesn't settle? Then what would happen from there? What would a court do?

If the mediation is unsuccessful, like I said, there's always opportunities even during the trial to resolve the matter at any point.

But let's say it's unsuccessful and you find yourself at a trial and you're at the hearing.

27:32
This is when really the future of the company is in the court's hands, and the court has a very broad range of powers in terms of what they can do.

As severe as they could be, they could effectively order to just wind the company up, get rid of it.

27:48
You know, the relationship is broken down too much. It's not recoverable.

Now this is a very extreme remedy, particularly if there's things like employees at the company, because the court will take into consideration, well, if we're winding up the company, all of these people are out of a job.

So that makes it less likely, but it is still possible.

28:05
And like you're saying, Daniel, that's the risk, right?

Like there's a lot of, yeah, and at the end of the day, it's one judge making a choice of what they consider the most appropriate in the circumstances.

You might not get what you want even if you're the successful party.

28:20
So if I'm saying Daniel's oppressing me and the judge agrees with me that he is, yeah, I might say, well, I want to buy Daniel out for this.

And the court might not agree with the remedy. They might agree with my position but not agree on the remedy.

They might actually order that it's wound up or that Daniel buys me out.

28:37
So that's the risk.

Yeah, the risk there.

And the most common order that is made is that there's a buyout of the shares.

Yeah, generally it's the majority buying out the minority. That way the company can still keep running.

But yeah, like Lauren was saying, what you think those shares are worth all of a sudden doesn't mean anything.

28:56
It's what the judge thinks. And the judge often is assisted by the expert valuations and makes that assessment.

But really, if it doesn't settle, it's out of your hands.

There's difficulties in valuing a private company. You know, it's not a listed company that you can see this is what it's trading for on the stock exchange.

29:11
And there's a big difference in the type of private companies that exist.

They can be as small as Daniel and I working together, and a company that maybe is being valued at $500,000, and it could be all the way out to there might be 15 shareholders and the company might be valued at $25 million.

29:30
Yeah.

So it's difficult. And even though you have expert valuers, often the amounts that they come back with can be quite different.

Different, yeah.

Yeah.

So it's challenging.

Yeah, that can come down simply just to the instructions that's provided to the expert valuer.

29:47
Yeah, forecasts or things like that.

Exactly. Especially if it's not a joint valuation, if it's independent.

I mean, you've got to look at, well, what was the valuer told?

Yeah, so what would the value have been if it was not for the oppressor's actions?

Like particularly if they have engaged in things like breaches of directors' duties as well.

30:04
That can be an argument that's made.

It's like, well, the company actually should have been worth more, but you were taking all the money for yourself or you were not acting in the best interest of the company. You've actually lowered its value as well.

Yeah, yeah. And there's often a lot of hostility at this point in time.

And what a common misconception is, is that the court's role is not to punish the oppressor.

30:23
The court's role is to look at the company and say, how can we stop the oppressive conduct and keep this company operating?

So yeah, I mean, look, there might be some sort of negative consequences as a secondary effect, but the court is not in a position to be punishing people for oppressive conduct.

You think it may have been?

30:38
That's good. I was going to ask what's one sort of myth from this area.

But what I'm hearing is essentially it's not the role of the court to punish. It's to remove the oppression by whatever means it thinks is most appropriate.

So it's an objective test to commercial unfairness, but the court will consider subjective factors in choosing an appropriate remedy.

31:04
So you don't have to come to the court with clean hands, is what we call it.

So sometimes in equitable remedies, I can't claim a remedy if I have acted in a way that's inappropriate.

Yes.

So even if Daniel was oppressing me and I also oppressed him back, like I was doing something wrong as well, it doesn't mean I can't get a remedy under the oppression regime.

31:31
But I might get a less favourable remedy from the court because they'll take into consideration I was also doing the wrong thing.

Yes.

So it's best to not stoop to their level if things are going on.

Get legal advice early. Kind of goes back to what I was saying before. And don't try and fix it yourself and be like, oh, well, I've done this so I'm going to do this back to them.

That's a bad idea.

31:59
Yeah.

Well, I want to ask one final question to each of you to summarise, if I can get one tip, Lauren, on a sort of pre-litigation in a shareholder's dispute when you're thinking about oppression.

And then the same from Daniel for, you know, once it turns into the more litigious area.

So what's your one takeaway tip for someone who's a shareholder who's in this mess?

32:20
It's a tough one because there's so many.

But I think in an ideal world, my dream clients were starting a business together. They get legal advice and they get a shareholders agreement prepared.

Because the shareholders agreement, if it's drafted properly, it should set out the expectations of the parties.

So what kind of roles they should be playing in the business. There'll be a dispute resolution provision that's beautifully drafted that will hopefully stop it going to court.

32:43
Different forced buyout provisions, deadlock prevention mechanisms.

So often we'll say in a 50/50, well, if they don't agree, no decisions can be made, which is a disaster for business disruption.

So a deadlock-breaking mechanism, maybe like a Russian roulette to buy out the other person to stop it going all the way to court.

33:00
And also having that document is perfect.

But also it encourages people to have the tough conversations, and it might inspire some, oh, actually, is this the person I really want to be going into business with?

If there's some kind of red flags, yeah.

Fantastic. And Daniel, on your side.

Yeah. So what you really want to do is really have a good think about, if you're the one that's going to be bringing this claim, well, what's this going to cost me?

33:23
What do I think the company's worth, and what do I want out of it?

If I want to be bought out of it, how much is that going to cost me? Is pursuing this going to be worse off?

Maybe do I need to consider, well, maybe it was a previous offer, maybe it was a little bit more acceptable than what I would have thought?

33:39
I think just really keep an open mind about how you can resolve this, because once you do go to court, you're in court and that's when it really starts.

Some of the process is taken out of your hands and the destiny's taken out of your hands a little bit at that point.

That's right, yeah, yeah.

You're bound by the court orders and what the court says you have to do, producing the documents, all that sort of thing.

34:00
And it really does step up a level.

So if you resolve it beforehand, or at least have an open mind, that'll greatly assist.

The judgment's public too, which a lot of clients don't realise until we get involved.

So if you do go all the way to hearing, that is published on the internet.

34:17
Anyone can type the name of the company in and find out about that.

Type in your name and read about all the things that have happened.

It's kind of airing your dirty laundry, which often people don't like, for obvious reasons.

Yeah.

So I think it's doing a cost benefit analysis if you're in that situation, if you're bringing a claim, but also if you're defending a claim.

34:43
Obviously a lot of the time people will be stuck on the principle.

So they will do the cost benefit analysis and know it's going to cost them a lot to take it all the way to court, and it's going to be published and it's stressful and all the negatives.

But they don't want the other person to win.

That's the common thing.

And they're like, I would rather pay you more than pay them.

34:59
Yeah.

But I think, I mean, it's not winning because usually neither, if you win, it's just a settlement and it's a crappy situation, but then you can kind of move on with your life.

So even though it's an emotional situation, try and remain as level-headed as you possibly can.

35:17
I think that's good advice.

One thing I would add is speak to your accountant or tax lawyer about what the tax consequences are.

Because once you've signed that deal, you could have thought it's something, but the after-tax result is completely different, whether it's a share sale or a share buyback or small business concessions.

35:35
But have those conversations with your accountant as well to make sure you understand the tax consequences of them as well.

Yeah, very important.

I want to thank you both for being on this episode. And if any listeners have any questions, situations involving shareholder disputes or even putting together shareholder agreements, then I'll encourage you to reach out to either Lauren or Daniel.

35:58
Thanks again.

Thank you.

Thank you, Andrew.

Thank you.