1. Johnson and Sneyd were Directors of a small printing company.
2. Johnson held 50% of the shares. Sneyd held 25% and Sneyd's partner held the remaining 25%.
Johnson bought proceedings against Sneyd alleging the following serious misconduct:
1. After Johnson had refused to sign loan documentation Sneyd purportedly forged Johnson's signature. The loan documentation was then forwarded to the finance company.
2. It was agreed that Sneyd would sell his vehicle to the company for $15,000.00 to be paid over three years.
Sneyd arranged for the company to pay for the vehicle the full $15,000.00 in three months with some of the payments being coded in the company books to third parties.
3. Sneyd made payments to his own bank account from the company's account. He explained this as being payment for casual labour by his partner's sons. He paid the money into his account as payment for board and lodgings for his partner's sons to avoid double handling.
There were other instances of self-interested conduct by Sneyd.
Johnson sought from the Court the disqualification of Sneyd as a director and an Order that Sneyd's shares be transferred to him. Johnson argued that he was entitled to this relief under section 174 of the Companies Act.
He argued that the company's affairs had been, are being and were likely to be conducted in a manner that is likely to be unfairly prejudicial, oppressive or unfairly discriminatory.
The Court held that Sneyd's acts were done in bad faith and self-interest to an extent which amounted to oppression. The actions of Sneyd had caused clear detriment to the interests of Johnson as shareholder.
The usual remedy in such cases is for the majority shareholder to buy out the minority shareholder.
Johnson was the majority shareholder and the Court made an order that Sneyd sell his shareholding at fair market value to Johnson. Sneyd was also removed as a Director of the Company.
In making this order, the Court considered the improbability of a continuing business relationship between Johnson and Sneyd due to the serious breaches of trust by Sneyd. The Court further considered that in a partnership type situation it is expected that each shareholder/director should act in good faith and in the furtherance of mutual interests, conducting the affairs of the company in a beneficial manner.
In small companies like the one in this case, section 174 may be invoked to now provide relief to majority shareholders where the actions of the minority shareholder/director have been oppressive or unfairly prejudicial.
