Australia: There is a right way and a wrong way to handle shareholder disputes

Last Updated: 30 July 2015
Article by Jennifer Ball

Key Points:

Part 5.3A of the Corporations Act is not the appropriate mechanism for resolving shareholder disputes.

Sometimes, being creative with the law can end up creating more problems than it solves.

Take shareholder disputes, for example. The Corporations Act 2001 (Cth) provides three avenues for resolution. Minority oppression cases and the winding up of a solvent company on the just and equitable ground under section 461(1)(k) of the Act requires an application be made to the court and usually, descends into time-consuming and expensive disputes about the facts.

Reference should also be made to the possibility of voluntary liquidation, which does not involve the court but which, like winding up on the just and equitable ground, ultimately involves the company's ceasing to carry on business and being dissolved (which may not be what the parties want).

None of these approaches was adopted when the director/shareholders of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd fell out among themselves about the direction that the business should take (Re Australian Blue Mountain International Cultural & Tourist Group Pty Ltd [2015] NSWSC 937).

The shareholders enlist the liquidator

The majority shareholders approached a liquidator about a possible retainer to assist with negotiations with another director and minority shareholder. Several phone calls and meetings were held with the liquidator and the majority shareholders, during which the liquidator gave advice to the majority shareholders as to steps that they might take to investigate a misappropriation allegation against the minority shareholder. The minority directors were not part of those discussions.

As a result of the discussions, the majority convened a board meeting to appoint a voluntary administrator. The minority were given less than two hours' notice of that meeting. The minority attended the meeting by phone learning for the first time of the involvement of the liquidator. The minority withdrew from the meeting and hung up before the resolution was put to the meeting that the company appoint the liquidator to act as voluntary administrator.

Once appointed, the administrator set about trying to resolve the differences between the shareholder/directors (including investigating the possibility of the minority's selling out of the company).

At the first creditors' meeting, the minority directors expressed concern that reasonable notice had not been given to the minority shareholders in respect of the board meeting and that the majority shareholders/directors were using the voluntary administration process for an improper purpose in circumstances where the company was not insolvent.

The administrator's solicitor responded that if the minority directors wished to challenge the validity of the appointment, they should do so.

Court to administrator: it's not your job

The minority directors successfully challenged the administrator's appointment, on the grounds that:

  • there had been inadequate notice of the board meeting - being less than two hours; and
  • the resolution of the majority directors that the company appoint the administrator on the belief that the company was either insolvent or likely to become insolvent (an essential prerequisite to the appointment of an administrator under section 436A of the Act) was invalid as the relevant directors' opinion was not held or not held genuinely or in good faith.

These defects were sufficient to empower the court to make a section 447C declaration that the administrator had not been validly appointed. (The question of the payment of the administrator's remuneration, costs and expenses on a quantum meruit basis was to be determined at a later date.) This was despite a submission made by counsel for the administrator that the lack of reasonable notice of the directors' meeting be cured by section 1322(4) of the Act, which the court rejected on the basis that substantial injustice was caused to the minority directors.

The court emphasised the principle that an administrator should take reasonable steps to confirm the validity of his or her appointment if, immediately after appointment, the resolution or instrument of appointment does not appear to be valid or during the course of the administration, he is put on inquiry about the validity of his or her appointment. Further, the court said in relation to the solicitor's response to a party who raised the concerns as to the validity of the appointment:

"It does not seem to me to be sufficient in that situation for his solicitor to express the view that a party with a concern as to that issue could make its own application to the Court, abrogating the administrator's responsibility to address such an issue."

The court was also at pains to emphasise that the purpose of the voluntary administration process provided for in Part 5.3A of the Act, is not an appropriate process for resolving shareholder disputes:

"...Pt 5.3A of the Corporations Act was not introduced as a mechanism to resolve shareholder disputes and its use for that purpose would tend to expose the company, its creditors and its contributories to a risk, which these proceedings amply demonstrate, that substantial costs would be incurred and no benefit would be achieved if shareholders could not in fact resolve their differences, or indeed if the costs incurred by the administrator then became an obstacle to such a resolution."

Lessons for voluntary administrators and shareholders

The judgment is a useful reminder that it pays to consider the correct approach when dealing with shareholder disputes, preferably under the provisions of Part 54.4A of the Act as opposed to Part 5.3A.

The court makes it clear that Part 5.3A is not the appropriate mechanism to be used to resolve shareholder disputes, and the role of a voluntary administrator is not to get involved in attempting to resolve shareholder differences. It might only result in exposing parties to the risk of incurring substantial costs if no benefit is able to be achieved if the shareholders are unable to resolve their dispute.

It is also a reminder of firstly, the difficulties that can arise where there is an unordinary level of engagement with a liquidator which occurs prior to that liquidator's formal appointment to act as voluntary administrator, which engagement may not be fully captured by the common form of such disclosures.

It is also a reminder of the principle where an administrator is put on notice as to the validity of his or her appointment, it is the administrator that needs to take reasonable steps to confirm the validity of the appointment by making a prompt application to the court.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.