Legal Updates

Not every action of diluting company existing shareholders’ holdings indicates oppression

April 8, 2022

A company shareholder contended that he was oppressed because the company took a decision to raise capital contrary to his position, which caused a dilution of his holdings.

The Court held that the shareholder was not oppressed. Not every issuance of rights which may allegedly lead to the dilution of existing shareholders is deemed oppression, because the assumption is that the capital injection into the company will increase the value of the company, and at the same time, the value of the remaining shares held by the diluted shareholders will also increase. Moreover, a decision to raise capital may be justified in light of its circumstances if the issuance of the rights is necessary for the company to continue to exist and operate. Here, the capital injection was necessary for the purpose of complying with regulatory demands and the decision was taken in full transparency regarding the company's financial situation and while giving the shareholder the opportunity to express his opinion. Thus, the mere decision to raise capital does not indicate oppression.