Keeping it fair

Incorporation of a company results in the creation of a separate legal personality, the operation of which is governed by the provisions of the Companies Act, Cap. 308 of the Laws of Barbados.

As with all institutions, the capacity for mismanagement abounds and the strong will always attempt to take advantage of the weak. In trying to mitigate the effects of natural human tendencies, the Companies Act contains provisions dealing with what is termed “oppression remedies” to protect amongst others, minority shareholders from the majority and shareholders generally from directors who may have run amuck.

Section 228 (2) of the act provides that “If…(1), the court is satisfied that in respect of a company or any of its affiliates, (a) any act or omission of the company or any of its affiliates effects a result,

(b) the business or affairs of the company or any of its affiliates are or have been carried on or conducted in a manner, or

(c) the powers of the directors of the company or any of its affiliates are or have been exercised in a manner, that is oppressive or unfairly prejudicial to, or that unfairly disregards the interest of, any shareholder or debenture holder, creditor, director or officer of the company, the court may make an order to rectify the matters complained of.

The orders which the court may make upon a finding under section 228(2) include the appointment of a receiver, amendment of the articles of incorporation, by-laws or unanimous shareholder agreements of the company; appointment of directors in place of, or in addition to, all or any of the directors then in office; payment of compensation to an aggrieved person; and/or liquidation of the company.

In Sottish Cooperative Wholesale Society Ltd. V Meyer [1959] A.C. 324 oppressive has been defined as “burdensome, harsh and wrongful”. Diligenti v RWMD Operations Kelowna Ltd. (1976) 1 BCLR 36 has equated “unfairly prejudicial” with that which is unjust and inequitable and Stech v Davies [1987] 5 WWR 563 has defined “unfairly disregard” as “to unjustly or without cause pay no attention to, ignore or treat as of no importance the interests of security holders, creditors, directors or officers of a corporation”.

In order to be successful in maintaining an oppression action the complainant must show that there has been some harm to his interests as a shareholder or director etcetera, as distinct from those of other shareholders or officers of the company. The articles of incorporation will set the tone for the type of behaviour which is acceptable or permitted in governing the company.

For example, if an act is permitted by the articles of incorporation then it would have to be proved that a director exercised his authority in bad faith in order for such actions on his part to be considered as oppressive.

In addition to the corporate documents, the court in Such v RW-LB Holdings Ltd. [1994] 3 WWR 725 has also indicated that the court will consider factors such as “the history and nature of the corporation, the types of interests affected, general commercial practice, the nature of the relationship between the complainant and the alleged oppressor, the expectations of the complainant, the size and structure of the corporation and the detriment to the interests of the complainant”. This list is not meant to be exhaustive and the court can have regard to anything it considers fit.

The interpretation of the requirements of section 228 have put the court in the position of judging the fairness of the actions of management which creates a broad discretion and therefore each individual case will turn on its own facts.

It essentially means that there are no guarantees as to how your particular case will be determined, but the law does provide some guidance as to what type of conduct has in the past been considered to fall within the definitions in section 228.

The types of actions which have lead to a finding of oppression by the courts include the unequal repayment of shareholders loans; exclusion of shareholders from participating in the governance of the company contrary to previous arrangements; failing to account for company funds in a timely manner; unauthorised use of company funds for personal expenses; payment by directors of management fees to another company of which they are the sole shareholders; and destruction of a company knowing that only minority shareholders would be affected.

Persons who incorporate companies along with others should inform themselves in relation to the provisions of the act which governs all such institutions and which can provide redress when things go terribly wrong.

Leave a Reply

Your email address will not be published. Required fields are marked *