By Taline Chater, Partner & Jack Little, Senior Associate
Corporate restructuring, whether involving capital raisings, share sales, or operational turnarounds are not only levers for growth but also necessary tools in navigating financial distress. Boards of companies in financial distress often implement such transactions to preserve enterprise value, avoid formal insolvency appointments, and protect stakeholder interests. Yet we have observed that these same steps may also precipitate significant shareholder conflict.
Disputes typically arise where minority shareholders perceive that their rights have been marginalised or their economic interests unfairly diluted. In distressed contexts, where capital is constrained and value may be rapidly eroding, tensions between equity stakeholders can quickly escalate into claims of shareholder oppression or derivative actions. In such scenarios, how executive directors in particular exercise their duties and how boards document and justify their decisions may be critical to the company’s stability and to the availability of restructuring options.
This briefing paper analyses the emerging trends in shareholder oppression and derivative claims in Australia, in the context of distressed environments. We provide insights for boards, secured lenders, investors, and restructuring professionals navigating these dynamics.
The primary option available to a shareholder who alleges oppressive conduct under Australian law is section 232 of the Corporations Act 2001 (Cth), whereby a court may grant relief where conduct by a company, or its controllers, is:
Oppression is assessed through the lens of commercial unfairness, not legal entitlement. That is, Australian courts apply an objective test, asking whether a reasonable board – equipped with the relevant knowledge and skills – could have made the same decision in good faith and with regard to both the corporate purpose and shareholder impact.[1]
Where oppression is established, the court may grant a wide range of remedies under section 233 of the Corporations Act, including:
Derivative actions under Part 2.F1A of the Corporations Act occupy a distinctive and highly circumscribed role within the Australian corporate law landscape, particularly in the context of distressed or contentious environments. At their core, derivative actions empower a shareholder or other eligible applicant to pursue proceedings on behalf of the company – typically against directors or others alleged to have caused harm to the company itself – where those in control of the company refuse or fail to act. The essential rationale is to provide a pathway for redress where the company (as the proper plaintiff) cannot or will not bring an action, often due to conflicts of interest at board level.
The legal threshold for commencing a derivative action is intentionally set high. Under Part 2F.1A of the Corporations Act, an applicant must obtain leave of the Court, which is only granted if the Court is satisfied, among other matters, that it is in the best interests of the company for the action to proceed, there is a serious question to be tried, and the applicant is acting in good faith. This framework is designed to prevent personal, tactical or speculative litigation that could threaten the company’s financial stability or reputation, particularly at critical times such as during a restructuring or an insolvency zone.
A derivative action may be an appropriate option where:
Given the high bar for Court approval and the potential for increased costs, adverse publicity, and the risk of destabilising ongoing restructuring efforts or creditor negotiations, derivative actions should be reserved for circumstances where the company’s interests would be materially advanced by pursuing the claim.
In contrast, an oppression claim as we have set out above, is generally available to shareholders who have suffered personal harm as a result of conduct that is “oppressive, unfairly prejudicial, or unfairly discriminatory” to them in their capacity as shareholders. Oppression remedies are therefore inherently broader and more flexible in their application.
Key distinctions between derivative and oppression actions include as follows:
| Derivative action | Actions for oppression | |
| Plaintiff in the legal action | Brought on behalf of the company and for the benefit of the company as a whole | Brought by (and for the benefit of) the aggrieved shareholder(s) |
| Subject Matter | Addresses harm to the company | Focuses on personal harm or prejudice to a shareholder’s interests |
| Procedural Hurdles | Require leave of the Court to file a proceeding | Proceed directly once pleadings are filed |
| Available remedies | Recover monetary losses for the benefit of the company | Broader and more discretionary, tailored to resolve or redress the unfairness to individual or a class of shareholders |
It follows that in practical terms, derivative actions will be most suitable where there has been serious director misconduct and/or misappropriation of assets and there is no viable way for the company to act in its own interests. Oppression claims on the other hand, are more appropriate where the dispute centres on the treatment of individual or a class of shareholders, such that they have been excluded from management or there has been a dilution of their voting power, and more flexible, personal outcomes are sought.
Two recent NSW Supreme Court decisions underscore the high evidentiary threshold that must be satisfied in order to initiate a statutory derivative action.
QLD Keystone Pty Ltd was the subject of a statutory derivative action brought by one of its directors who was also a majority shareholder of the Company. The director alleged that an unauthorised payment had been made by a former director to its associated entity and sought declarations voiding the relevant transaction entered into by the Company. The application was brought under section 237 of the Corporations Act.
The Supreme Court of New South Wales declined to grant leave for the director to commence the proposed derivative action. The Court’s reasoning was underpinned by several considerations:
In Re Gillespies Cranes Nominees Pty Ltd [2024] NSWSC 1136, the Supreme Court of New South Wales considered an application by a former director and beneficiary of a trust associated with the Company for leave to bring proceedings on behalf of the Company. The former director alleged that the present director, who controlled the trustee Company, had breached fiduciary duties by mismanaging trust property, namely, a crane asset, causing loss to the company.
At the time of the application, the former director relevantly remained a beneficiary of the trust operated by the Company. The proceedings sought to recover trust assets allegedly dissipated or misapplied by the director.
The former director applied for leave under sections 236 and 237 of the Corporations Act, arguing that:
The former director emphasised that the mismanagement directly impacted the value of the trust property and that a successful claim would restore value to the trustee Company and indirectly benefit the trust’s beneficiaries.
The Court in this case granted leave to bring the derivative action, finding that the former director had met the statutory criteria under section 237. Importantly, the Court was satisfied that:
Relevantly, the Court also accepted the former directors’ position that the trustee Company, under the control of the current director, was unlikely to initiate proceedings independently, and that the action was not personal in nature but genuinely aimed at restoring value to the trustee Company and its trust.
ERA, a listed uranium company controlled by Rio Tinto, faced a $2.3 billion rehabilitation liability at its Ranger Uranium Mine site.[2] To fund the cost, ERA announced a 19.87-for-1 pro rata renounceable entitlement offer in August 2024, seeking to raise $880 million at $0.002 per share. Rio committed to take up approximately $760 million of the offer.[3]
The minority shareholders objected, contending that the raise would:
The Takeovers Panel initially considered the matter in 2024 and later reviewed it following an application for reconsideration by the minority shareholders.
In both decisions, the Panel declined to make a declaration of unacceptable circumstances.[5] It found that:
The Panel’s decisions highlight that shareholder dilution, in itself, does not constitute “unacceptable” conduct unless there is clear evidence of an improper collateral purpose. However, companies undertaking dilutive capital raises must be able to demonstrate that alternative financing options were genuinely considered, that the structure of the raise was equitable, and that all material risks were fully and transparently disclosed. These requirements are particularly important to mitigate any perception of unfairness to minority shareholders, especially in situations where control dynamics may be shifting.
Additionally, the Panel reaffirmed that the legitimacy of an entitlement offer does not hinge on whether minority shareholders actually take up their entitlements. Instead, the critical issue is whether they were afforded a reasonable and equal opportunity to participate in the offer. This reinforces the need for careful process integrity, clear communication, and robust disclosure throughout the transaction.
In distressed situations, directors must ensure that the rationale for any funding decision is clearly documented, including records of advice received, and that the decision is commercially justified. Above all, directors must act consistently with their duties to all shareholders – not just those providing major funding. Well-documented governance and a transparent process are essential protections against future challenge.
The ERA decisions confirm that capital raises undertaken in distressed contexts will withstand legal challenge when the transaction structure is legally robust, process integrity is safeguarded, and disclosure to stakeholders is adequate. It is also essential that minority shareholders are afforded a genuine and equitable opportunity to participate in the offer. These factors, taken together, form the foundation for a defensible and transparent capital raising process in circumstances where the company is under financial pressure.
Nevertheless, when a capital raise results in a material consolidation of control – particularly where the 90% threshold for compulsory acquisition may be crossed, boards should be prepared for increased scrutiny by regulators and the Courts and potential disruptive action by disgruntled stakeholders. If the primary objective or effect of the restructure is to facilitate a transfer of control outside the formal takeover regime, this may, in certain (exceptional) factual scenarios, constitute oppressive conduct or amount to unacceptable circumstances. Accordingly, directors should test the broader legal and practical implications of their decisions during the planning stages of any restructuring transactions, ensuring that not only the letter, but also the spirit, of shareholder protections are upheld.
Li v Ye [2024] NSWSC 1176 presented a nuanced scenario of alleged oppression within a closely held company, involving both minority and majority shareholder claims. The dispute was between Mr Ye, the founder and majority shareholder of the Shield Group of companies, and the management team consisting of the CEO, COO, and CFO, all of whom were minority shareholders. Tensions escalated over the management of a sawmill project, allegations of board-stacking with Mr Ye’s family members, and efforts by management to marginalise and exclude Mr Ye from the companies’ operations in a context which the Shield Group was, if not actually insolvent, close to insolvency.[7] The situation culminated in Mr Ye being physically locked out of company property and excluded from day-to-day management, prompting claims and counterclaims of oppression from both sides.
The minority management shareholders initiated proceedings under s232 of the Corporations Act, seeking relief on the basis that Mr Ye’s actions, particularly regarding board composition and alleged mismanagement, constituted oppressive or unfairly prejudicial conduct. They pointed to Mr Ye’s involvement in the purported appointment of family members to key governance positions and alleged he was seeking to consolidate control to the detriment of the companies and the interests of minority shareholders. The alleged exclusion from key decision-making and attempts to marginalise formed part of the basis of the minority shareholders’ claim for statutory oppression.[8]
Conversely, Mr Ye brought a counterclaim, arguing that he, as the majority shareholder, had been unjustifiably excluded from operational control by the management team. He asserted that the lockout and ongoing exclusion from company premises and information not only deprived him of his rights as a shareholder and director but were themselves acts of oppression. Accordingly, Mr Ye contended that the alleged oppressive conduct ran both ways.
The Supreme Court of New South Wales found that Mr Ye’s intention was undoubtedly to cause family members to be appointed so that together they could out vote management and that this conduct was oppressive. However, there was no evidence that the board (constituted by Mr Ye’s family) ever passed a resolution and therefore management’s oppression claims against Mr Ye were not made out. On the other hand, the Court found that management’s conduct in excluding Mr Ye from involvement in the companies, in which he was majority shareholder, was oppressive.[9]
The Shield Group decision crystallises a crucial theme for practitioners navigating shareholder oppression claims in distressed businesses: the reciprocal nature of oppression risk within closely-held companies, particularly where operational and financial pressures intensify underlying governance tensions. The Court’s willingness to consider both the majority and minority shareholders’ conduct and to find oppression by the minority over the majority shareholder, emphasises that the statutory protection under s232 of the Corporations Act is not confined to safeguarding one class of shareholder. In distressed contexts, directors and shareholders should be aware that actions taken to secure control, whether through board reconstitution, exclusion from management, or as was the case in the Shield Group, physical lockouts, can trigger judicial intervention if proper process, transparency, and procedural fairness are not meticulously observed.
Distressed businesses often intensify conflicts as stakeholders seek to protect their respective interests amidst uncertainty and declining enterprise value. Shield Group reinforces that a disciplined approach to process and stakeholder engagement remains the most effective safeguard against the risk of successful oppression claims.
BBHF Pty Ltd, an entity associated with Dr Adir Shiffman, held a minority (10%) shareholding in Sleeping Duck Pty Ltd, an Australian company engaged in the bedding and mattress industry. Dr Shiffman had a longstanding advisory relationship with Sleeping Duck, having contributed to the company’s strategic direction over several years. Tensions arose when BBHF was excluded from involvement in management decisions by the company’s founders and subsequently diluted through the implementation of an Employee Share Option Plan (ESOP), which BBHF alleged was orchestrated on unfair terms and without proper notice.[10]
BBHF brought proceedings under section 232 of the Corporations Act alleging oppressive conduct by the majority shareholders and directors of Sleeping Duck.[11] The grounds for the oppression claims fell into two main categories: (1) exclusion from company management, contrary to BBHF’s asserted legitimate expectation of Dr Shiffman’s involvement in management because of his advisory role, and (2) dilution of BBHF’s shareholding through a share issue under the ESOP, which BBHF contended was executed unfairly, lacking transparency and procedural fairness, and prejudicial to BBHF’s interests as a minority shareholder.
The Supreme Court of Victoria rejected all of BBHF’s oppression claims. In relation to management exclusion, the Court found there was no contractual, constitutional, or equitable basis for BBHF’s asserted legitimate expectation of participation in management. On the dilution claim, the Court determined that BBHF had acquiesced to the ESOP’s implementation and that the process surrounding the ESOP – including obtaining independent advice and conducting a market valuation – met the standards of commercial reasonableness and transparency.
The Court’s reasoning was grounded in the principle that minority shareholders must establish a legitimate expectation of management participation by pointing to specific agreements, conduct, or governance documents. The Court declined to elevate informal advisory relationships or early-stage contributions to the status of enforceable management rights. In addressing the ESOP-related dilution, the Court placed significant weight on the clear, documented process adopted by the Company, including rigorous adherence to governance protocols and the seeking of independent advice. The absence of surprise or procedural impropriety was fatal to BBHF’s claims of unfair prejudice.
Notably, the Court reiterated that oppression remedies are not intended to provide a shield for every instance of commercial disappointment experienced by minority investors. Instead, relief is reserved for conduct that departs from accepted standards of fairness and equity, having regard to the company’s constitution, agreements, and the reasonable expectations of shareholders as a group.
A theme emerging from the Sleeping Duck decision is the reaffirmation of the boundaries of statutory oppression claims, particularly in the context of start-up and growth companies. The decision underscores the necessity for minority shareholders to define and document their legitimate expectations of management involvement at the outset in contractual documents, as informal relationships and advisory roles do not, in themselves, attract statutory protections. Equally, companies should continue to implement robust governance practices, ensuring transparency, the pursuit of independent legal and financial advice, and adequate notice in relation to share issues and significant corporate actions.
For practitioners, the case serves as a reminder that courts will consider both the substance of shareholder claims and the quality of the company’s processes. Properly documented decision-making and consistent adherence to agreed protocols remain in our experience, the best safeguard against claims of oppression. In a broader sense, this decision signals that, while minority protections exist, the bar for Court intervention remains high, particularly where governance processes are respected by all parties.
Given the strategic complexities and interplay between these remedies, early engagement with experienced legal advisers is essential for boards, investors, and stakeholders navigating contentious or distressed situations. The identification of the most appropriate legal remedy/ies or the management of such risks should be informed by careful consideration of the commercial objectives, legal evidentiary thresholds and procedural requirements, and the potential impact on ongoing or potential restructuring initiatives.
Recent decisions reflect a maturing approach in Australia to oppression and derivative actions, in the context of corporate distress. We see the following themes emerging:
| Theme | Implication |
| Capital Raising under Pressure | Boards must document decision making processes and demonstrate that dilution is a legitimate means of capital preservation, not an instrument of control. |
| Governance Breakdown in Private Companies | When relationships fracture, exclusion of shareholders (even majority ones) from management must be carefully justified and in best interests of the company. Mutual misconduct may erode the position of both parties in legal proceedings. |
| Legitimate Expectations Require Evidence | Involvement in a company, even as a key advisor, does not equate to a legitimate expectation that one is part of management, unless contractually or structurally recognised. |
| Derivative Action is a High Bar | Courts will not permit claims that could expose a company to greater financial or reputational harm, even if misconduct is arguable. The “company’s best interest” test is paramount. |
| Remedies Are Tailored and Reluctantly Granted | Courts are reluctant to intervene in internal corporate disputes absent clear evidence of commercial unfairness, systemic governance failures, or improper purpose. |
By way of final observation, for boards, investors, and debt stakeholders operating in distressed environments, oppression and derivative claims present both litigation risk and potential leverage points, depending on which side of the table you sit. Experienced legal advice early on, particularly in capital structure decisions, shareholder negotiations, and board frictions, is critical.
We would be very pleased to discuss these matters further with you. Please feel free to get in touch.
[1] Wayde v NSW Rugby League Ltd (1985) 61 ALR 225.
[2] https://www.afr.com/companies/mining/uranium-mine-shareholders-try-to-delay-rio-tinto-capital-raise-20240905-p5k85q?gift=FMEj46XeLB7HRrlAA_DRdFOR_EP9iobe6G5mL-KpauPLI-578bc05IHz77mFqACkprEWJX-Lwdsz2BSN8sEuES0jAOGdcWL2h1vHS1FCo3ElK0IE_1vRVci9I6jL4ijnkZg
[3] [2024] ATP 22 at [10].
[4] Ibid at [23] – [93].
[5] Ibid at [102].
[6] Takeovers Panel, Energy Resources of Australia Limited [2024] ATP 22 and [2024] ATP 24. Available at: takeovers.gov.au
[7] Shield Group at [104]-[115]
[8]Shield Group at [339]-[357]
[9] Shield Group at [430]
[10] Sleeping Duck at [13] – [25].
[11] Sleeping Duck at [29].
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