Members’ Rights and Remedies (Textbook – Topic 10 pg. 493-530)
Members
Section 231 –
Membership
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Are a member of the company on its registration
Agree to become a member of the company after its registration and
their name is entered on the register of members
 Become a member of the company under section 167 (membership
arising from conversion of a company from one limited by guarantee to
one limited by shares)
Restrictions on who can be a member
Public listed – no restrictions but can have internal rules to restrict class of shares
Proprietary – internal rules
Nature of Shares
Section 1070A (1)-(2)
 A share, other interest of a member in a company or interest of a person
– Nature of shares
in a registered scheme:
o Is personal property
o Is transferable or transmissible as provided by:
 The company’s, or scheme’s, constitution
 The operating rules of a prescribed CS facility if they are
applicable
o Is capable of devolution by will or by operation of law
 Paragraph (1)(c) has effect subject to:
o In the case of a company
 The company’s constitution
 Any replaceable rules that apply to the company
 The operating rules of a prescribed CS facility if apply
o In the case of a scheme
 The scheme’s constitution
 The operating rules of a prescribed CS facility if they
apply to the interest
Cease membership
Companies with a share capital
 By selling all shares and the company registering the transfer
 Shares bought back by company and the company register the transfer
 Shares cancelled following a selective reduction of capital (ss 256B and C)
 Shares are transferred involuntarily pursuant to a scheme of
arrangement or compulsory acquisition provision or a lien provision in
the company’s internal rules on partly paid shares and transferred is
registered
 Company is deregistered by ASIC
 Upon death or bankruptcy – transmission to the deceased members’
personal representative or the trustee in bankruptcy, who may or may
not choose to become registered as a member (S1071B(5)-(10)
 Forfeiture of non-payment of call
Companies limited by guarantee
 When resigned, or terminated, in accordance to company’s internal rule
 Deregistered by ASIC
 Upon death or bankruptcy
Correction of registers
Section 175 (1)-(2) –
 Company or registered scheme or a person aggrieved may apply to the
Correction of
Court to have a register kept by the company or scheme under this Part
registration
corrected
 If the court orders the company or scheme to correct the register, it may
also order the company or scheme to compensate a party to the
application for a loss or damage suffered.
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Carew-Reid v The
Public Trustee 1996
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Shareholder wants to sell shares. Constitution say must give other
shareholders right of pre-emption. If none then directors can choose who
to transfer shares to.
 Directors chose to transfer to someone outside of company before
offering to shareholders
 Registration of transfer of shares were breached thus court void transfer.
Restriction on transfer of shares
Refusal to register
Company’s internal rules may give directors the right to refuse to register shares
but must be exercised in good faith for the benefit of the company, and not for
any other purpose.
SS 1071F, anyone refused registration may apply to the court and if the court
believes the directors have refused or failed to register “without just cause”, the
court can make an order as it sees fit
Waters v
 Shareholder executed a deed to arrange shares to be transferred to his
Winmardum Pty Ltd
trustee in bankruptcy.
 Directors refuse to register.
 Court held directors refusal was without just cause and ordered the
transfer
Winding up
Any transfer of shares must be made before commencement of winding up
Any transfer after winding up commences is considered void
Rights and Remedies
Members rights and remedies are protected by:
 General law
 Corporate act
 Statutory contracts (ss 140(1))
 Special agreement
Personal actions
Actions taken by members where the breach affects a member’s personal right
Representative
Actions where one member sues on behalf of other members to enforce a
actions
personal right which all members enjoy in order to save time and litigation costs
Derivative actions
A member or group of members brings an action on behalf of the company for a
wrong done to the company. The company becomes a defendant to the action
Derivative and
A joint action can occur if the action or decision gives rise to both personal and
personal actions
derivative rights
together
Members’ statutory
Remedies in Pts 2F.1 and 2F.2, ss461(1), 1322, 1324
remedies
Class actions
Where seven or more joint applicants bring an action together against a common
defendant
Personal rights conferred by general law
 Right to challenge a fraud on minority
 Right to have his/her voting rights protected against improper actions by
the directors which would dilute or otherwise harm those rights
 Right to sue directors for breach of their fiduciary duties in the special
fact situations where the courts have found that directors owed duties to
particular shareholders not just to the company
 Right to challenge modification of the company’s internal rules which
expropriate valuable proprietary rights attaching to shares
Fraud on minority
Definition: the abuse of power, where by majority members use voting power to
secure an unfair gain at the expense of minority.
Applies in particular situations:
 Expropriation of company property
 Expropriation of member’s property
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Release of directors’ duties
Changing the constitution for an improper purpose
Gambotto v WCP
Majority shareholders wanted to change constitution to buy out all
1995
minority shareholders.
 Minority shareholders who attended the meeting voted for the
amendment.
 Gambotto did not attend challenged the amendment on the ground of
majority attempting to expropriate his shares
 Court found the proposed modification as invalid even though it
compiled with normal statutory requirement. It would’ve been valid if it
was carried out for proper purpose.
Modifications
Modification must comply with:
involving an
 Requirements in the corporations act;
expropriation of
 Be for proper purpose; and
shares
 Not operate oppressively
Modifications giving Modification must comply with:
rise to conflicts
 Requirements in the corporations act; and
between members
 Is not oppressive or beyond any purpose contemplated by the company’s
constitution
Personal rights and remedies under statute
Personal rights
Members statutory rights and remedies:
conferred by statute
 Right to inspect company’s books (s247A);
 Right to apply to the court for an order to correct a company register
(s175)
 Rights to challenge decisions by the majority which affect members’
special rights (s246D)
 Right to seek an injunction against a breach of corporations act (s 1324)
 Right to seek a remedy for oppression (Pt 2F.1)
 Right to apply for a winding up order (s461)
Personal rights
Internal rules are a contract between the company and members and between
conferred by the
members themselves (s140(1)).
statutory contract
Difficult to decide whether a breach of internal rules is either:
 Internal irregularity capable of being ratified by the general meeting; or
 A serious infringement of personal right
Foss v Harbottle
Key development to the law on members’ remedies:
 “Proper Plaintiff Rule” – the company, and not the members, had the
right to commence legal action to rectify any alleged wrong committed
against the company
 “Internal Management Rule” – rights of members to enforce their
personal rights, including the right to ratify breaches as provided by the
consititution.
General Statutory rights and remedies
 Derivative action (s236 and 237)
 Oppression remedy (s232-235)
 Injunction (s1324)
 Procedural irregularities (s1322)
 Winding up order (s461 and 462)
Derivative action
Member has a general statutory right to bring proceedings on behalf of a
company or to intervene in proceedings to which the company is a party (s236).
Proceedings must be brought in the company’s name s236(2)
S236
Bringing, or intervening in proceedings on behalf of a company
1. A person may bring proceedings on behalf of a company, or intervene in
any proceedings to which the company is a party for the purpose of
taking responsibility on behalf of the company for those proceedings, or
for a particular step in those proceedings
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a. The person is:
i. A member, former member, or person entitled to be
registered as a member, of the company or of a related
body corporate; or
ii. An officer or former officer of the company
b. The person is acting with leave granted under section 237
2. Proceedings brought on behalf of a company must be brought in the
company’s name
3. The right of a person at general law to bring, or intervene in, proceedings
on behalf of a company is abolished
S237(1)-(3)
Charlton v Baber
Proceedings can be brought against a director, for breach of duties owed to the
company; or a third party, for a breach of a contract or for a tort committed by
that party
Applying for and granting leave
1. A person referred to in paragraph 236(1)(a) may apply to the Court for
leave to bring, or to intervene in, proceedings
2. The court must grant the application if it is satisfied that:
a. It is probable that the company will not itself bring the
proceedings, or properly take responsibility for them, or for the
steps in them; and
b. The applicant is acting in good faith; and
c. It is in the best interest of the company that the applicant be
granted leave; and
d. If the applicant is applying for leave to bring proceedings – there
is a serious question to be tried; and
e. Either
i. At least 14 days before making the application, the
applicant gave written notice to the company of the
intention to apply for leave and of the reason for
applying; or
ii. It is appropriate to grant leave even though
subparagraph (i) is not satisfied
3. A rebuttable presumption that granting leave is not in the best interest
of the company arise if it is established that:
a. The proceedings are
i. By the company against a third party; or
ii. By a third party against the company
b. The company has decided:
i. Not to bring the proceedings; or
ii. Not to defend the proceedings; or
iii. To discontinue, settle or compromise the proceedings;
and
c. All of the directors who participated in that decision
i. Acted in good faith for proper purpose; and
ii. Did not have a material personal interest in the decision;
and informed themselves about the subject mater of the
decision to the extent they reasonably believe to be
appropriate; and
iii. Rationally believe that the decision was in best interests
of the company
 Chalrton and Baber were members and directors of company
 Co. went into liquidation and was winding up
 Charlton applied for leave (s237) to bring proceedings on behalf of the
company to s236 against Baber.
 Baber challenge but court granted leave under s237 for Charlton to
commence proceedings
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Oppression Remedy
Section 232
Section 234
Section 233(1)
Statutory Injunction
Section 1324(1)
Court was satisfied with criteria under s237
o Probable that company would not bring proceedings since it was
in liquidation and had limited funds (s237(2)(a))
o Application was in good faith (s237(2)(b))
o Best interest of the company because if successful, would
provide benefit to the company (s237(2)(c))
o Involved serious questions regarding alleged breach of directors’
duties (s237(d))
o Sufficient notice of his intended application (s237(2)(e))
The Court may make an order under s233 if:
a) The conduct of a company’s affair; or
b) An actual or proposed act or omission by or on behalf of a company; or
c) A resolution, or a proposed resolution, of members or a class of
members of a company;
Is either:
d) Contrary to the interest of the members as a whole; or
e) Oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a
member or members whether in the capacity or any other capacity.
Who can apply for relief:
 A member, whether personally affected or not, or acting in his/her
capacity as a member or not;
 Person removed from the register of members because of a selective
reduction of capital;
 Person who has ceased to be a member if the application relates to the
circumstances in which membership ceased;
 Person to whom a share in the company has been transmitted by will or
operation of law; or
 Person whom ASIC thinks appropriate having regard to its present or past
investigations into the company’s affair
Remedies the court can grant an order,
 That the company be wound up
 That its existing constitution be modified and repealed
 Regulating the conduct of company affairs in the future
 Purchase of shares by any member or by the company
 Directing the company to institute, prosecute, defend or discontinue
specified proceedings, or authorising a member or members of the
company to institute, prosecute, defend or discontinue specified
proceedings in the name of and on behalf of the company
 Appointing a receiver or a receiver and manager of any or all of the
company’s property
 Restraining a person from engaging in specified conduct or from doing a
specified act
 Requiring a person to do a specified act
1) Where a person has engaged, is engaging or is proposing to engage in
conduct that constituted, constitutes or would constitute:
a. A contravention of this Act; or
b. Attempting to contravene this Act; or
c. Aiding, abetting, counselling, or procuring a person to
contravene this Act; or
d. Inducing or attempting to induce, whether by threats, promise or
otherwise, a person to contravene this Act; or
e. Being in any way, directly or indirectly, knowingly concerned in,
or party to, the contravention by a person of this Act; or
f. Conspiring with others to contravene this Act
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Procedural irregularities
Section 1322
Where procedural irregularity has caused substantial injustice, the aggrieved
members may apply to the court under s1322(2)
Mamouney v
Company called for a special resolution to alter constitution
Soliman 1992
Notice was deficient in terms of timeliness, distribution and content.
Resolution was passed
Court ruled resolution invalid due to the lack of proper procedure
Winding Up
Section 461(1)
Ebrahimi v
Westbourne
Galleries 1973
General grounds on which company may be wound up by court
e) Directors have acted in affairs of the company in their own interests
rather than in the interest of the members as a whole, or in any other
manner whatsoever that appears to be unfair or just to other members;
or
f) Affairs of the company are being conducted in a manner that is
oppressive or unfairly prejudicial to, or unfairly discriminatory against, a
member or members or in a manner that is contrary to the interests of
the members as a whole; or
g) An act or omission, or proposed act or omission, by or on behalf of the
company, or a resolution, of a class of members of the company, was or
would be oppressive or unfairly prejudicial to, or unfairly discriminatory
against, a member or members or was or would be contrary to the
interests of the members as a whole; or
k) The court is of opinion that it is just and equitable that the company be
wound up
 Breakdown of mutual trust between directors
 Directors had a resolution to remove the other director
 Application for winding up was approved because the removal excluded
him from management and profits thus unjust.
Reasons for winding up:
 Breakdown of mutual trust and confidence
 Deadlock
 Fraud, misconduct or oppression
 Failure of substratum
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