Background
Joanna Scott held interests in Aulich Civil Law Pty Ltd and Aulich Property Trading Pty Ltd. After relations deteriorated, she indicated in March 2020 that she wished to leave the companies and have her shares bought at fair value. The directors, Benjamin Aulich and Peter Woodhouse, subsequently participated in share issues that Ms Scott did not take up, reducing her interests in both companies to negligible proportions.
The primary judge found that the share issues were principally undertaken for the improper purpose of diluting Ms Scott’s holdings and lacked a genuine commercial rationale. Because ACL had entered liquidation and APT was likely to enter external administration for reasons unrelated to the oppression, the judge ordered Aulich and Woodhouse, jointly and severally, to compensate Ms Scott personally for the diminution in the value of her holdings at the time of dilution. The directors appealed both the oppression finding and the relief granted.
The Court’s Holding
The Full Court dismissed the appeal. It found no appellable error in the primary judge’s conclusion that the ACL and APT share issues were oppressive under s 232(e) of the Corporations Act 2001 (Cth). The evidence supported the findings that the issues were principally intended to dilute Ms Scott’s interests and that no genuine commercial rationale justified them.
The Court also upheld the compensation order under s 233. Although the oppressive conduct had ended and the companies’ external administration was not caused by it, the effects remained: the dilution had deprived Ms Scott of the value of her holdings. Section 233 conferred a broad remedial discretion, and personal compensation equivalent to a buyout at the time of dilution appropriately restored her position without punishing the directors. The appellants were ordered to pay Ms Scott’s costs.
Key Takeaways
- A formally proportionate share offer may still be oppressive where its principal purpose is to dilute a shareholder and it lacks a genuine commercial rationale.
- The end of the oppressive conduct, including through liquidation or external administration, does not automatically prevent relief when its harmful effects remain unremedied.
- Section 233 permits the Court, in an appropriate and unusual case, to order directors personally to compensate an oppressed shareholder by reference to the value lost through dilution.
Why It Matters
The decision confirms that courts will examine the purpose and commercial substance of capital raisings, not merely whether new shares were offered proportionately to existing shareholders. Contemporaneous communications about dilution and the absence of a demonstrated funding rationale can be decisive.
It also illustrates the breadth of the oppression remedy. Even when a company’s later failure is unrelated to the oppressive conduct and a conventional buyout is no longer practical, the Court may fashion compensatory relief against the individuals responsible to address the continuing economic consequences.