Question

Morris, John and Paul are directors and shareholders of Noosa Property Developments Pty Ltd (NPD), a property development company which owns and operates a restaurant. Morris and John are brothers. John and Paul are friends and partners in an accounting firm. Morris is an unemployed artist and sole parent of three young children. The total number of issued shares in NDP is 6,000 ordinary shares. Each shareholder has 2,000 shares. All the shares are fully paid. NPD has been very successful but has not paid any dividends to its members for the last two years. Profits have instead been invested in further development projects. Morris’ wife has recently died and he is very short of money to look after his family. He approaches John and Paul and asks them to consider whether NPD could begin to pay dividends again to its members. John and Paul refuse 9 to consider Morris’ request as it would upset the “long-term goals of NPD.” Morris is upset by this response and announces that he wants to sell his shares. John and Paul refuse to buy him out and demand that Morris resign as a director because he has lost his objectivity. Morris resigns reluctantly. He asks to see NPD’s most recent set of financial statements. John and Paul refuse to provide the information. Morris discovers accidentally that NPD has been paying large “management fees” to John and Paul’s accounting firm. Morris consults you as his legal adviser. He wants to know:

(i) Should he bring a derivative or personal action against John and Paul? What factors should he take into account in making this decision? Identify whether there is a derivative action (proceedings on behalf of the company) and explain the relevant law applicable.

(ii) If he brings a personal action, should he bring it under the general law or make an oppression claim under S.232? What factors influence your recommendation? What evidence in the question is relevant to deciding if oppression exists?

(iii) What orders should he seek? 9

Answer 1

Answer 1 = He should take derivative action against company and personal action against the directors for hiding material information & misleading, under derivative action he should levy opression claim under sec 232 of corporation act 2001. Whatever the statutory rights they have deprived moris of should be taken into consideration such as unreasonable amount of mgmnt fees to their accounting firm, forcing moris to resign, not disclosing moris material information.

Answer 2 = Moris should claim shareholder opression claim under sec 232 and the factors on the basis of which I as a legal advisor recommending are Whatever the statutory rights they have deprived moris of should be taken into consideration such as unreasonable amount of mgmnt fees to their accounting firm, forcing moris to resign, not disclosing moris material information.