Question 1 Cotton Limited holds 89.5% of the shares in Satin Co Limited. The remaining shares are held by Silk and several other small investors. The Board of Satin wants the company to become a...

Assignment Question 1
Answer: - In the given scenario, Cotton Limited is a majority shareholder by virtue of its
89.5% shareholding in Satin Co Limited. Silk and other small investors can be termed as
Minority Shareholders. Minority shareholders, as the term itself implies, are those
shareholders who hold minority stake in a company. These shareholders do not have any say
in day-to-day running of the company. The majority shareholder or shareholders enjoy
effective control over the company. The company, also refe
ed to as a legal person, requires
someone to keep up with the business, take decisions and manage the company. Since a
company is an association of persons, the law provided for simple majority rule for running
the affairs of the company. However, this rule is susceptible to misuse. (Tomasic,, 2002) It is
said that power co
upts and absolute power co
upts absolutely. The person or the group of
persons enjoying control over the company by way of their majority share holding tend to act
in a way beneficial to a person or the group of persons. Many a time it goes against the
interest of the remaining shareholders collectively refe
ed to as the minority shareholders.
The law acknowledges the quandary of the minority shareholders and provisions have been
made in the Corporations Act 2001 for protection of their rights. Part 2F.1 of the Act ibid,
contains the provisions, also known as the oppression remedy, which allow for various types
of reliefs that can be ordered by a court on the grounds of oppression or unfairness. Section
232 specifies the grounds which can be invoked for obtaining an order from the court. In
other words, an application can be prepared by seeking an order concerning the conduct of its
affairs or the actual or proposed act or omission by or on behalf of the company or a
esolution made or proposed to be made by the members or a class of members. (Comaster law
firm) However, the person who is approaching the court for a trial shall have to prove that the
occu
ence or the proposal is either contrary to the interests of the members or is oppressive
to or unfairly prejudicial to or unfairly discriminatory against a member or members.
The scope of Section 232 has been subject of intense discussions and the courts had
the occasion to consider the same in a catena of judgments. It has been specified that the
complaints may relate to the affairs of the company as defined in Section 53 of the Act ibid.
This provision has been drafted in a manner so as to include not only the acts, omissions or
esolutions which have already occu
ed but it also includes the proposed acts or omissions.
In other words, it enables an aggrieved person to initiate remedial action after the conduct has
occu
ed or to prevent damaging action before its occu
ence. Section 232 (c) also clarifies
that a resolution passed or proposed by a class of members can be the subject matter of an
application under the Act. It may also be a case that the directors are acting consistently
within the constitution of the company but their conduct may be oppressive to other
members. (Abduljammi) Thus, it is not a precondition that the conduct should be illegal or ultra
vires. Mere prejudice or discrimination is not sufficient to approach the court. It has to be
shown that the impugned conduct is unfairly pre-judicial or unfairly discriminatory. The facts
in the present scenario bear a striking resemblance to what is popularly refe
ed to as
Gambotto Case. In Giancarlo Gambotto and another v WPC Limited and Another (1995) 13
ACLC 342, the factual position was that 99.7 % of the total shares were held by a wholly
owned subsidiaries of Industrial Equity Ltd and one Mr. Gambotto and the other complainant
held slightly less than 0.1% of the total shares. The majority had set in motion a process to
ecome a wholly owned subsidiary of IEL on account of potential tax and administrative
savings. On 15 April 1992 the secretary of WCP Ltd sent a written notice to the members of a
general meeting to be held on 1 t May 1992. The purpose of this meeting was to seek an
amendment to the articles by inserting a new article 20A. This would have the effect of
empowering any member who already held 90% or more of the shares to compulsorily
acquire all the other issued share for a price calculated on the basis of net asset value basis.
The lower court had ruled in favour of the plaintiff, which was overturned by the NSW court
of appeal. The case ultimately went to High Court, which overturned the judgment by NSW
Court of Appeal holding that actions of WCP were oppressive. The judgment in this case
einforced the law laid down in three historical British judgments namely Brown v British
A
asive Wheel Co [1919] 1 Ch 290, Dafen Tinplate Co v Llanelly Steel Co [1920] 2 Ch 124
and Sidebottom v Kershaw, Leese & Co [1920] 1 Ch 154. The principal propagated in these
cases was that it is not permissible, in the absence of a specific statutory power, for the
majority to alter the articles so that it can, simply for its own benefit, eliminate the minority.
Thus, from a collective reading of the legal provisions and the judgments, as explained
above, it appears that Ms. Silk has a fairly reasonable chance of succeeding, if she decides to
approach the competent court for redressal of her grievances. However, the situation changes
completely if the real reason for compulsory acquisition of shares is that she is operating a
usiness in competition with Satin Co and using the...