Legal Updates

Non distribution of dividends may be deemed oppression of minority

April 18, 2019

A company managed a swimming pool and at some point signed a combination deal in which it received 32 out of 204 apartments built on the ground, which it sold. The controlling shareholder purchased a considerable part of such apartments under favorable terms. After the sale of the remaining land, the company remained inactive, but the funds were not distributed to the shareholders.
The Court held that the rights of the minority shareholders were oppressed and that the company's assets are to be distributed to the shareholders pro rate to their holdings in the company. Unfair distribution of resources among shareholders in the company, and particularly between the controlling shareholders and the minority shareholders, and the legitimate expectations of the shareholders, including the expectation of an egalitarian relationship between identical shareholders, this will be considered oppression. Exploiting the status of the controlling shareholder in order to withdraw funds from the company to such shareholder and not distributing the balance of the funds constitutes a violation of the shareholders' legitimate expectation of an egalitarian treatment and therefore oppression. In such a case, the Court has a very broad authority, including giving instructions regarding the distribution of dividends to the shareholders.