A shareholder refused to inject capital into the company. As a result, its holdings were diluted and its right to a seat on the board of directors was revoked as he did not hold the required minimum proportion of shares (25%) and therefore contended to oppression of a shareholder.
The Court held that there is no oppression where the capital injection is required for the company and the dilution is done in accordance with the provisions of the founders agreement. Oppression of the minority in a company is mainly a situation of unfair distribution of resources in the relations between the controlling shareholders of the company and the minority shareholders. Harming the legitimate expectation of a shareholder to be involved in the affairs of the company may be deemed oppression when it comes to a closely held corporation. However, it is not possible to attribute to the shareholder an expectation that is not compatible with the provisions of the founders agreement and the obligations it took upon itself. The decision of a company board of directors to demand from the shareholders an injection of capital, which creates difficulty for a shareholder who lacks financial means, when the capital can be raised in another manner that does not require an injection of money, may in some cases be deemed a breach of the duty to act in good faith, especially if harm is expected as a result of dilution. Here, the founders agreement regulated the manner in which the capital was injected into the company, established a dilution mechanism and determined the proportion of shares that entitles a shareholder to appoint a director (25%). The company's business was not good and the board of directors' decision to raise capital from the shareholders was made only after exhausting and examining the options stipulated in the founders agreement. The decision made was reasonable, inter alia, due to the legitimate concern that raising capital in an alternative way by providing guarantees on the part of the shareholders, for example, would eventually likely lead to their realization. The shareholder consciously chose not to invest additional funds in the company as required by the board of directors knowing that its refusal entitles the other shareholder, who chose to invest, to dilute it below 25% and as a result knew that it was expected to lose its right to a seat in the board of directors. Thus, he consciously waived his expectation to be involved in the management of the company and therefore there is no oppression.