The rights of minority shareholders are frequently in conflict with those of majority shareholders and directors. One case that delves into this closely is Wilfred v Dare, 2018 which examines the concept of reasonable expectation of liquidity and its intersection with the law of oppression and corporations.
The case revolves around Carolyn Dare, a minority shareholder in Serad Holdings Limited, a family-owned business. Carolyn argued that her inability to sell her shares due to the lack of a third-party market amounted to oppression, which raised questions about the fair treatment of minority shareholders and the responsibilities of those in control of the corporation.
The court’s analysis in Wilfred v Dare provides important insights into the concept of reasonable expectation of liquidity. It considered various factors, including the capital needs of the family business and the lack of a third-party market for the shares, Carolyn’s financial difficulties – which were not caused by her brothers – and the fact that she had received her interest in Serad Holdings Limited as a gift as part of an estate freeze.
This demonstrates that the law of oppression requires courts to balance the interests of minority shareholders with the legitimate business interests of the corporation. While minority shareholders are entitled to fair treatment and protection from oppressive conduct, they must also consider the broader context of the corporation’s operations and the impact of their actions on the business as a whole.
Key Regulations
In this case, the court decided that simply not being able to sell shares wasn’t enough to be considered oppression. To understand why, it’s important to look at the basic principles and how they apply in situations like this:
Reasonable Expectation of Liquidity: The court evaluated whether Carolyn could reasonably expect to sell her shares. This assessment considered factors like the company’s financial needs, her understanding at the time she acquired the shares, whether there were other ways for her to get value from her shares, and how she got her shares in the first place.
Oppression and Fair Treatment: The law of oppression aims to protect minority shareholders from unfair treatment by the majority. The court must balance the rights of minority shareholders with the company’s legitimate interests. In the Wilfred case, the court emphasized that the oppression remedy doesn’t entitle a shareholder to avoid restrictions on the liquidity of their shares unless there is clear evidence of unfair or oppressive behaviour.
Establishing Oppression: To prove oppression, a shareholder must show that they have been treated unfairly or ignored. This requires presenting evidence of a consistent pattern of behaviour or actions that unfairly disadvantage the minority shareholder.
These principles highlight the complexity of oppression claims and the need for a thorough understanding of the facts and circumstances of each case. They also emphasize the importance of balancing the rights of minority shareholders with the legitimate business interests of the corporation in applying the law of oppression.
Successor cases, such as Noble v. North Halton Golf, 2018 and Corber v. Henry, 2023 reaffirmed the findings in Wilfred v Dare. They emphasized that the oppression remedy is not designed to relieve a minority shareholder from the limited liquidity attached to their shares or to provide a means of exiting the corporation, in the absence of any oppressive or unfair conduct.
Individuals in a similar situation should be aware of these principles. Understanding the aspects of liquidity expectations, oppression, and fair treatment is crucial for protecting minority shareholder rights and ensuring fair corporate governance practices. When faced with issues related to reasonable expectations of liquidity, seeking legal advice and understanding one’s rights as a shareholder are essential steps in navigating these complex legal matters.
