Partner Article

Happy Days Ltd v Walter & Retirement Settlement Resident

A minority shareholder is that equity holder in a firm without any voting control. His or her interest in the firm is below 50%. Remedies to minority shareholders are increasingly becoming significant. Majorly, these remedies aim at offering a means by which minority shareholders can protect and impose their rights in situations they reasonably belief the directors or those holding major shares have violated their rights (Ford, Austin, & Ramsay, 2011). Among the strongest remedies employed entail an action in opposition to the majority holders for their unfairly and oppressive prejudicial conduct. This remedy is often called the oppression remedy. The remedy oppression laws are found in the 2001 Corporations Act (Cth) (“CA”), specifically Part 2F. 1. The act has three sections: 232, 233, and 234. Walter and Shirley have been living in a community called Happy Days Ltd and receiving aged pension, which they use to travel to New Zealand to visit their son and family annually. Notably, this aged pension is from their investments. However, they are faced with a challenge because the directors have decided to reduce the amount claiming that residents are demanding better services, which require more money that the company lacks. Walter and Shirley plus other colleagues have a feeling that the 30% cut is arising from the fact that the company is planning to expand its business by purchasing an apartment in Melbourne for the retirees. The company is no longer paying dividends in a bid to utilize its retained earnings in growing the firm. Despite these woes, the contract between the residents and the company permits the review of fees annually. Nevertheless, the review seems malicious. In an attempt to defend their rights, the residents protest at the company’s head office although the directors refuse to hear them out. During this time, the Chairman engages Walter into a scuffle where he falls. He is injured and has to remain on a wheel chair awaiting knee replacement. The news reached Channel 7 and upon interviewing the chairman, he made offensive remarks concerning Walter. Consequently, Walter wishes to sue him for defamation. On the other hand, the chairman wants Walter moved out of the resident by claiming that he is unfit. In reference to the case at hand, Walter and Shirley can apply for the oppression remedy according to Section 234 of the Corporation Act. Section 234 (a)(i) states that any member is allowed to apply even when the application is related to act or omission, which is against a party in their capacity besides being a member. It also holds that one can apply even as another member in the membership capacity (a)(ii). According to the 2001 Corporation Act, the failure to pay dividends alone may not be considered oppression (Gibson & Fraser, 2013). Nonetheless, it is regarded oppression in certain situations. Importantly, the history of the firm should be scrutinized, the degree of its financial requirements, as well as, the reasonable anticipation of its members. An example is the “D G Brims & Sons Pty Limited (1995) 16 ACSR 559.” The case entailed a closely held firm that successful in manufacturing timber products. One third of the shareholders were Donald G Brims’ descendants. Donald is the founder of the business. The case applicants included the founder’s granddaughter alongside her family, which was holding 31.12% of the issued ordinary shares. They claimed that they were oppressed and hence sought for orders for purchasing their shares. Mainly, the oppression claims arose from the fact that dividends were not issued in 1991, they were denied board representation, the firm was reimbursing the expenditure incurred by the respondents in the defense of the proceedings, and the board and auditors had fixed unreasonably low price for the applicant’s shares. Regarding the withdrawn dividends, the court ruled in favor of the company and termed their move as justified. This is because the firm had an old saving policy instead of borrowing and had pursued its trading philosophy of “paying its own way.” Besides, the board could discuss the dividends payment annually in reference to the needed extra capital items and recurring expenditure. Contrarily, it can be oppressive to announce a dividend in case the directors do not appraisal its policy of not pronouncing a dividend in inconstant economic situations and if they have made salary reviews during the same period. This happened in “Shamsallah holdings Pty Limited v CBD Refrigeration and Airconditioning Services Pty Limited (2001) 19 ACLC 517.” In reference to Walter and Shirley case, considering the circumstances surrounding the Brims’ ruling, the two stand a chance in an Australian court of law. Although Happy Days Ltd contract with its residents permits yearly fee reviews, there seems to be malice and oppression because they are raising the fees in the name of increased demand for more activities and facilities at a time when they are planning to buy an apartment in Melbourne. Australia has many statutory rights, which offer relief to the distressed shareholders in cases when the directors misuse their power positions unfairly or upon breaching their duties. The Corporation Act has two means of protecting the rights of shareholders against misbehaving directions. Firstly, part 2 F.1 is about the shareholders’ statutory rights where company affairs are done contrary to the firm’s interest and are wholly oppressive and unduly prejudicial or biased (Woodward, Bird, & Sievers, 2005). Secondly, part 2F .1A permits shareholders to submit proceedings on a firm’s behalf or arbitrate in procedures to which the organisation is a party handling statutory action (Lipton & Herzberg, 2012). The Australian Corporate Law presently permits directors to consider the stakeholders’ interests instead of those of the shareholders (Lipton & Herzberg, 2012). Walter and Shirley are both stakeholders and shareholders. For one, they are stakeholders because they are investors and customers of Happy Days Ltd and secondly, they are shareholders because they have invested their retirement savings to be receiving dividends. In this regard, Happy Days Ltd directors should have considered the residents’ interests as stakeholders. They are customers of their retirement settlements. Further, the fact that the halted dividends will go to a new venture, which the current residents are not stakeholders is wrong. If this cash was to improve this facility, then, the directors could acting within the law. However, given that they are using increased demand for facilities and services by the current clientele as a scapegoat for the apartment they plan to buy in Melbourne, then, they are acting outside the Australian corporate law. According to the Australian Corporate Law, the current legal responsibility of directors to shareholders is vital in promoting good financial performance; this duty should not be diluted (Gibson & Fraser, 2013). Good performance acts as an excellent ground of meeting the stakeholders’ expectations. During the period when a firm is a going concern, the disagreement between the stakeholders’ interests ought to be addressed and balanced properly if the firm is to be sustainable and reputable in the long-run. At this insolvency point, the interests of the stakeholder diverge; the Corporation Act has ways of handling this (Goode & Goode, 2011). In the case, Spies v R (2000), the directors were found by the High Court as not owing creditors any positive duty although in situations where the firm was nearing insolvency, a limit was eminent regarding the degree to which shareholders’ could ratify the directors’ behavior. Notably, by contrast, the Western Australian Court of Appeal ruling during the “Westpac Banking Corporation v Bell Group Ltd (in lig) (No.3) (2012) 89 ACSR 1,” in which Bell Group’s directors were found to have infringed their common law duty to conduct take actions in good faith as well as in the best interest of the firm through their failure to consider more groups of creditors. The case at hand is comparable because Happy Days Ltd directors did not act in good faith or in the best interest of the stakeholders. They failed to consider the large numbers of the residents who even tried to seek a hearing but were given deaf years. In fact, a fight broke out between Walter, a resident, and the chairman that left him immobile. Worse, the chairman spoke rudely about Walter during the Channel 7 interview. Walter and Shirley can apply for oppression remedy based on the principle of legitimate expectation. This principle referred to in Dalkeith’s case is applicable equally in situations wherein a minority shareholder is excluded from a salaried post in the firm. This exclusion might be unfair although it may be a valid conduct by the authority of the majority of the board of directors in case there is an anticipation of the sustainable participation as well as sharing uniformly of the daily business deals and management at the directors’ level. An excellent example is “Hogg v Dymock & Ors 11 ACSR 14.” In Walter and Shirley v Happy Days Ltd case, they can apply for the remedy because one of their sources of income has been withdrawn. The aging couple depends on the aged pension and investments with their retirement savings as the source of income. The withdrawal of dividends payment may be unfair considering the minority shareholders- the residents have not be involved in the decision-making. The decision was made solely by the major shareholders- directors. Furthermore, the fact that they were claiming the money is needed to improve the facility and services whereas they were planning to buy an apartment to expand their business without considering the fact that the new establishment had nothing to do with the current retirement settlement. The directors should have sought other means to start a new project because the apartment in Melbourne has nothing to do with Walter and his fellow residents. Moreover, the chairman was out of order to engage his customer in a fight considering the residents were fighting for their rights. Worse, when interviewed, the chairman made rule remarks about Walter. This is what forced Walter to think about suing the chairman for defamation. Defamation means spreading bad reports concerning another person, which could harm him or her. It is possible to defame a person when another one says something untrue about him/her. In Australia, defamation differed between states prior to January 2006. However, currently, Uniform Defamation Laws have been formulated. These laws borrowed from the statutory provisions of the old laws although they retained the primary foundations of common law that conventionally defines defamation as follows: “The publication of any false imputation concerning a person, or a member of his family, whether living or dead, by which (a) the reputation of that person is likely to be injured or (b) he is likely to be injured in his profession or trade or (c) other persons are likely to be induced to shun, avoid, ridicule or despise him” (Gibbson & Sutherland, 2012, p.66). “Publication of defamatory matter can be by (a) spoken words or audible sound or (b) words intended to be read by sight or touch or (c) signs, signals, gestures or visible representations, and must be done to a person other than the person defamed” (Hill, Hill, & Pertliz, 2013, p.147). In the event that one feels defamed, he has to prove to the court that certain things happened. For instance, the individual has to prove that the words used were defamatory in the sense that the words could hurt the person’s reputation. In Walter’s case, the chairman uttered rude words meaning they hurt him and his ego as a man and customer. Also, the person has to show beyond doubt that the words used identify her or her as the defamed. Happy Days Ltd’s chairman spoke hurtful things about Walter during the interview with Channel 7. This means there are witnesses to the defamatory worlds uttered; the words can be termed as published because of the presence of the interviewer who is the third party and the listener. In reference to the Uniform Defamation Law, Walter can sue the chairman because the interviewer (listener/publication) can identify the two. Further, as it regards the defamation, Division 3 of the 2005 Defamation Act provides several remedies. First are the damages to bear reasonable relationship to harm. Second is damages for non-economic loss limited (Austlii, N.d). Third are damages for several causes of action, which may be determined as single sum. Lastly entails factors in alleviation of damages. There are legislative remedies that can be applied in Walter’s case. Section 233 of the 2001 Corporations Act holds that in case a Court discovers the presence of oppression in pursuit to section 232, it can make other rulings deemed proper. The proper order is dependent on the circumstances surrounding each case. However, despite the direction taken, it should be one that concludes the case. In most cases, especially those regarding minority the commonest remedy is purchasing the shares. Some considerations are made in this regard. Normally, the Court is averse to rule for a wind up of a well-performing solvent firm. In “Cumberland Holdings Ltd v Washington H. Soul Pattinson and Co Ltd (1977) 2 AClR 307,” shutting down is a drastic redress. This is because the value of the assets will be realized at a lower value as compared to when the firm would have been sold as a going concern. When the Court is evaluating the worth of the oppressed shareholder like Walter in order to make an order in reference to section 233 of the 2001 Corporations Act, it ought to place Walter in a position just as if the coercion had not happened. Thus, this is the reason in “ES Gordon Pty Limited v Idameneo (1994) 15 ACSR 536 at 540,” the Court gave the term fair significance in cases regarding the price at which the aggressor is to buy the shares of the oppressed. For example, during “Scottish Cooperative Wholesale Society Limited v Meyer [1959] AC 324 at 369,” Lord Denning claimed that among the most vital orders, which could be made is to make an order that the oppressor buys the oppressed shares at a fair price. Such an order would favour Walter and Shirley. Generally, it is out of order to discount the worth of the oppressed shares. Consequently, during “Roberts v Walter Developmments Pty Limited (1997) 15 ACLC at 906,” the Court claimed that when it makes an order of purchasing the oppressed party’s shares as a relief, some deem improper to offer any discount to a minority share that may be applicable in case the person was in search for the share’s market value. Thus, Walter has high chances of acquiring the worth of his shares in Happy Days Ltd. The relief transaction is made as a judiciary remedy but not a market one. Moreover, it would be deemed unfair to offer discount just due to the oppressive behavior on the part of the others.

This was posted in Bdaily's Members' News section by Jacob Quigley .