Director & Shareholder Disputes

A company's key feature that sets it apart from other business structures is that it has directors and shareholders.

The directors control the company and how it conducts its business.

They are accountable to the shareholders for the way they conduct the company’s business.

Companies can be governed by their company constitution or by the replaceable rules set out in the Corporations Act 2001 (Cth) or by a combination of both.

In addition to legislation, there are numerous guidelines and standards that have been produced by organisations and industry bodies which provide companies with further guidance on matters of corporate governance.

These include the OECD Principles of Corporate Governance and publications from Standards Australia and the Australian Institute of Company Directors.

Disputes between directors and shareholders may arise because of:

  • 1 or more directors breaching their duties as a director;
  • disagreements about the company’s strategic direction and management;
  • withholding dividends or payment of dividends;
  • disagreements about the comparative amounts of salaries and profits paid as dividends;
  • conflicts of interests, including directors having personal interests in other companies or businesses;
  • fraud or illegal conduct by directors, including suspicions and allegations of misappropriation of company funds; 
  • a lack of transparency or denial of requests to provide financial and accounting information;
  • certain directors or shareholders being excluded from meetings or management;
  • breaches of the Company Constitution, Replaceable Rules or Shareholder’s Agreements; and
  • insolvency and liquidation.

The Corporations Act 2001 (Cth) s 232 allows shareholders to apply to the Court for relief where an act or lack of action or a propose act or proposed lack of action by a company is contrary to the interests of the shareholders, or, amounts to oppressive, unfair or discriminatory conduct against its members.

The Corporations Act 2001 (Cth) s 233 gives the Court broad power to make appropriate orders if it finds that the company’s conduct is oppressive, including:

  • winding up the company;
  • making orders regulating how the company conducts its affairs in the future;
  • ordering, restricting or placing conditions on the sale or purchase of shares;
  • authorising a member of the company to commence proceedings on behalf of the company (also known as a derivative action); and
  • appointing a receiver or receiver and manager of the company’s property.

If you are a director or shareholder in a company and are involved in, or are worried that you are about to become involved in a dispute, it is important to choose the right lawyers to represent you.

Disputes involving companies are typically dealt with in either the Federal Court of Australia or the Supreme Court of Western Australia.

It is important to choose a lawyer who is familiar with the Court procedures and who has experience acting in these Courts.

It is also important to choose a lawyer who can see the “big picture” and provide you with practical advice about how litigation may affect the company going forward, and the range of options available to you.