The Federal Court addressed the distinction between an oppression action and a derivative action in corporate law, focusing on the legal test to determine which is the appropriate recourse for a shareholder's complaint.
Some of the key points:
Oppression vs. Derivative Action: The main difference lies in whether the harm is personal to the shareholder or affects the company. An oppression action (under Section 346 of the Companies Act 2016) involves direct personal wrong or injury to the shareholder, while a derivative action (under Section 347) addresses harm done to the company.
Legal Test for Oppression: To bring an oppression action, the shareholder must show that the act, omission, or misconduct was oppressive, unfairly prejudicial, or discriminatory against them, with the loss being distinct to them and not reflective of harm to the company.
Legal Test for Derivative Action: If the injury or loss is to the company and affects all shareholders equally, the claim should be pursued as a derivative action, where the company itself is the proper party to sue.
The Federal Court also reiterated the rule against reflective loss i.e. when a company suffers a wrong, individual shareholders cannot claim for personal loss if their loss is merely reflective of the company’s overall loss.
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