Minority shareholder oppression: Lessons from Slea and Skytraders

Oppression found: Slea

In Slea, the court considered a claim by a minority shareholder (Slea Pty Ltd), controlled by Sofianos Tsialtas, against the majority shareholders of Connective Services Pty Ltd – namely Millsave Pty Ltd and Mark Haron. Slea alleged a range of oppressive conduct, including:

• Improper payment of directors’ fees.
• Withholding of financial records.
• Obstruction of share sales.
• Attempts to dilute Slea’s shareholding via an undisclosed restructure and sale of shares.
• Refusal to declare dividends.

Justice Robson found that the majority shareholders had engaged in dishonest and deceitful conduct, amounting to oppression under section 232. The restructure and sale of shares to Macquarie Bank were rescinded, and Slea was granted the unusual remedy of acquiring the majority’s shares – a reversal of the typical buy-out order.

However, this decision was the subject of a successful appeal.

Appeal outcome: Majority shareholders prevail

In the appeal decision, the Court of Appeal overturned key aspects of the trial judgment. The court held:

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• The trial judge erred in rejecting evidence of negotiations regarding a potential merger with AFG.
• The majority shareholders’ intentions were not improperly motivated to exclude Slea.
• The sale process and the AFG transaction were not, in fact, oppressive.
• The remedy allowing Slea to acquire the majority’s shares was inappropriate.

The court emphasised that the usual remedy in such cases is for the majority to buy out the minority at fair market value, not the reverse. The appellate decision marked a significant clarification in the application of oppression remedies and affirmed that relief must be proportionate and commercially appropriate.

No oppression found: Skytraders

In contrast, Re Skytraders Pty Ltd involved Mr Vickers, a 30 per cent shareholder and director of an aviation company, who brought proceedings against the majority shareholder (Mr Mackay, holding 51 per cent) for oppression following his removal as director and operational manager.

Mr Vickers argued that he had a reasonable expectation to remain in those roles and that his exclusion was unfair and prejudicial. However, the court found:

• While the expectation may have been initially reasonable, it was no longer so due to a breakdown in relations.
• Mr Vickers had vacated his office and undermined the CEO, suggesting an intention to withdraw from active management.
• The majority’s actions were commercially justifiable and in the company’s best interests.

As such, the court held that the conduct did not constitute oppression and dismissed the claim. The case reinforces that not all conduct that frustrates a minority’s expectations will meet the threshold of oppression, particularly where the majority’s actions are rational and justifiable from a business perspective.

Key takeaways

• Courts retain broad discretion under section 232 but will exercise it with restraint, especially where remedies would disrupt the commercial integrity of shareholding arrangements.
• A minority shareholder’s expectations must be objectively reasonable and contextually supported; mere disappointment or exclusion may not suffice.
• Courts may depart from the typical buy-out remedy, but only in exceptional circumstances. Slea was one such case at trial – but not on appeal.
• Both cases underscore the need for majority shareholders to act transparently and in good faith, particularly in closely held companies.

Conclusion

The decisions in Slea and Skytraders demonstrate the careful balancing act courts must perform when determining whether conduct is oppressive under the Corporations Act. While minority shareholders are protected against unfair prejudice, the remedy is not a vehicle for reversing legitimate commercial decisions. These judgments provide valuable precedent on the nature of shareholder expectations, appropriate remedies, and the evidentiary burden required to establish oppression.

Lais Almeida is a senior associate at ITC Law.