Legal Updates

Oppression in a company will be reviewed through the objective legitimacy of the expectations of the party claiming oppression

September 10, 2023

A shareholder in a company that operated as a "quasi partnership" contended that his "partner" who serves as the company's manager, runs the company in a way that deprives him of his rights by causing him to invest further funds in the company.

The Court rejected the claim due to the agreements of the parties that only one of them will invest funds. The purpose of the provision prohibiting the oppression of shareholders is to prevent various situations of unfair distribution of the company's resources among the shareholders. An act will be seen as disadvantageous if it damages the other party's legitimate expectations, and the answer to what constitutes a violation of legitimate expectations will vary pending on the circumstances of each and every case. When it comes to a company operating as a "quasi partnership", it can be assumed that the legitimate expectations of the parties include an expectation of joint and equal management of the company. Here it was agreed that only one will invest funds and the investment in the company exceeded the preliminary estimate. However, because the nature of the company's activity required the investment of a great deal of money and from the beginning the parties mutually agreed that one party would finance the company's activities, while the other would not invest money in the company, but would only contribute his skills to it, then there is no oppression.