Legal Updates

No oppression of the minority exists when the minority agreed to the “oppressing” terms and no legitimate expectation is impaired

February 19, 2018

Shareholders of a company contended the majority oppressed them by conducting losing interested party transactions with a group owned by it and at some point, terminated their employment in the company and diluted their holdings.
The Court held that oppression of the minority is a situation in which the legitimate expectations of shareholders are prejudiced, provided that such expectations were known to the other shareholders and are acceptable on them. Here, no shareholders' agreement existed, but the majority of the company was offered their shares in order to utilize their connections in a group that they owned. There was an agreement between the parties that the majority shareholders financed the acquisition of the company and all its activities and the minority shareholders work in the company and receive salaries and benefits. Thus, there was no harm to the minority's expectations and there was no oppression. Moreover, although when it is proven that interested party transactions took place by the majority, the majority need prove that the transactions were fair to the company, here it was proven that the conditions that the company received were preferable to such acceptable in the market. Nevertheless, because the company was operated as a kind of partnership, it is sufficient that the trust between the parties was lost in order to order separation, but because it was proven that the value of the company is negative, the separation will be by way of transfer of the minority shares to the majority for no consideration.