"The "Proper Plaintiff" and "Internal Management" Principles

 
In the early 19th Century in a number of decisions concerning the law of partnership the Courts made it clear that they were reluctant to intervene in partnership disputes other than by winding up the partnerships. Where assets were held by the partnership and there was no partnership agreement to the contrary this often led to the appointment of receivers for sale. This attitude was extended to "joint stock companies" where the membership was extensive, shares were freely traded and the membership was "fluid". It was considered that the Courts ought not interfere with company affairs where it was possible for a majority of members to approve or ratify the dealings of companies.

Eventually these rules were relaxed a little as a result of the decision of Foss v. Harbottle (1843) 2 HARE 461 and later developments where the "internal management" and "proper plaintiff" principles were laid down. Simply, subject to various exceptions; the first principle amounted to an acceptance that the Courts ought not act to address the concerns of aggrieved minority shareholders as the majority has power to influence the direction of the Company; and the second principle, that the Company was the "Proper Plaintiff" where there was an actionable wrong to it and that the Courts should only act on proceedings commenced by it.

The rule in Foss v. Harbottle has been described as "labyrinthine" and has limited the ability for shareholders to obtain injunctive relief (orders requiring the doing or refraining of doing of certain activities) over the years, although as said there are exceptions. Some of these exceptions were developed by case law, others by statute eg. the Corporations Act and its predecessors which provides jurisdiction to obtain certain orders preventing contraventions of the Act in particular circumstances. Shareholders may also be able to act in certain situations where liquidators are unwilling to; for example to recover debts of a company in liquidation.

The Corporations Act and its predecessors have provided mechanisms to wind companies up and appoint liquidators in cases where companies are being run oppressively as against minority shareholders or where the "sub-stratum" (original purpose for being) has failed, as well as other situations.

(These situations are of course quite different to the "shareholders class actions" with which most of us are familiar from press articles and which relate to actions by companies causing damage to shareholders in their personal capacities for example by encouraging persons to buy or hold shares in companies on the basis of stale or misleading information about the company's affairs or prospects.)

In the event that you are an aggrieved shareholder there may be avenues of recourse open to you about which we will be able to advise. Maybe the commencement of the Company arose from an amicable arrangement which has "gone wrong", and you are not being treated as favourably as the majority?

In the event that you are a creditor of a company we are experienced in pursuing your debt recovery by appropriate means including seeking judgement against corporate debtor (where appropriate) and pursuing their liquidation.

On the other hand, you might require assistance in purchasing a company and/or the formulation of a "shareholder" agreement in order to "head off" any dispute or predicament that might result in the future; for example an agreement amongst shareholder for the first right of refusal on a sale/purchase of shares and other arrangements to secure orderly management succession

If you require a solution to a company problem we welcome your call on 9517 1988 or fill out and submit the following form.