When the majority shareholders in a corporation take action that unfairly prejudices the minority, oppression occurs.
The definition of oppression is defined in the case, Re Kong Thai Sawmill (Miri) Sdn. Bhd., as a conduct by the majority shareholders which visibly departs from the standards of fair dealing and violates the conditions of fair play that are expected by the minority shareholders. The court held that:
- There must be an identifiable conduct that is deemed to be unfair against the minority shareholder before that conduct is deemed to be oppressive against the minority; and
- The oppression must be a present one that continued on to the day of the proceedings.
Below are some guideline to refer to decide if oppression occur:
- To bring in oppression, 1st condition is that you must be the shareholder of the Company and your interest as a shareholder has been infringed. If you are the Director and Shareholder of the Company, it is for you to prove that being the minority shareholder, your interest has been oppressed by the majority.
- Where there is a major control by certain parties or individual. For instance, when there is a majority shareholder in the Company. This is due to the majority rule concept that is being practised by most of the Company. By doing so, it may cause oppression in the minority interest as their interest may be neglected when the decision is made by the majority shareholders.
- The misconduct or mismanagement by Directors. When Directors are completely indifferent in the operation and interests of the company, that causes huge losses in the Company or cessation of business which directly affects the value of the shares.
- Denial of declaration of dividend when there are profit in the Company especially when the majority shareholder is the Director and has been receiving a substantial sum in the forms of director fees and other remunerations. This causes a reduction in the profit of the Company. Oppression occurs as minority shareholder may not receive returns that are reasonable.
In the Companies Act, 2016, under Section 346 stated the remedy in cases of an oppression. However, the Companies Act is silent as to what amount to an oppression conduct. Hence, the task is left for the court to decide and for the complainant to proof the wrongdoing of relevant majority shareholders/directors.