Prevention of Oppression and Mismanagement

In one line

A qualified minority may complain to the Tribunal that the company's affairs are being conducted in a manner prejudicial to the public interest, to the company or oppressively to any member, or that a change in management makes such conduct likely; and the Tribunal, if it is satisfied and if winding up would unfairly prejudice the complainants although the facts would justify a just and equitable winding up, may make any order it thinks fit to bring the matter to an end.

In exam wording: section 241 states the grounds, section 242 the powers of the Tribunal, section 243 the consequences of terminating an agreement, and section 244 the right to apply.

Why the law has this at all

The exceptions to the rule in Foss v. Harbottle gave the minority a remedy only if it could fit its complaint into one of them, and even then the remedy was usually damages, which does nothing about a course of conduct that will continue tomorrow.

And the only other remedy was the harshest one. A member could petition to wind the company up on the just and equitable ground, which ended the oppression by ending the company, destroying the value of his own shares along with everybody else's.

Section 242(1)(b) is the sentence that solves that problem, and it is worth reading twice: the Tribunal may act where winding up would unfairly prejudice the complaining members, but the facts would otherwise justify a winding-up order on the just and equitable ground. In other words, the section is for the case that deserves a winding up but should not have one, and it substitutes a tailored order for the blunt one.

And because the mischief is a course of conduct, the relief in section 242(2) is largely prospective: regulate the affairs in future, buy the minority out, remove the managing director, appoint directors who report to the Tribunal.

Some words this chapter uses

Oppression is conduct that is burdensome, harsh and wrongful to a member in his character as a member. Mismanagement is the second limb, conduct prejudicial to the interests of the company or to the public interest. Just and equitable is the ground of winding up in section 271(e). A fraudulent preference is a transfer that would, in an individual's insolvency, be set aside as preferring one creditor over others. Fit and proper is the standard the Tribunal applies under section 242(4A).

Who may complain, and of what: section 241(1)

Any member of a company who complains:

• (a) that the affairs of the company have been or are being conducted in a manner prejudicial to public interest, or in a manner prejudicial or oppressive to him or any other member or members, or in a manner prejudicial to the interests of the company; or
• (b) that a material change, not being one brought about by or in the interests of any creditors including debenture holders or any class of shareholders, has taken place in the management or control of the company, whether by an alteration in the Board of Directors or manager, or in the ownership of the company's shares, or, if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of that change it is likely that the affairs will be conducted in a manner prejudicial to the company's interests or to its members or any class of members,