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Many shareholders claim they are powerless against changes to a company’s constitution which may have a detrimental effect on them. The decision of the Federal Court of Australia in Wilmar Sugar Australia Limited v Queensland Sugar Limited  FCA 20 provides some hope for the little guys (the shareholders) versus the big boys (the company).
Queensland Sugar effectively controlled the marketing of sugar for its shareholder sugar farmers, one of whom was Wilmar. Queensland Sugar sought to amend its constitution which would have resulted in the reduced rights of Wilmar to have a say in the appointment of directors and management of the company. Wilmar commenced proceedings against Queensland Sugar for a number of claims arising out of the proposed amendments which were presented as “conduct that is unfairly prejudicial to, or unfairly discriminatory against Wilmar, in its role as a shareholder of Queensland Sugar.
In response to the Wilmar claims, Queensland Sugar asserted that in changing the company’s constitution, Queensland Sugar was responding to the changing business and regulatory environment of the sugar industry and in particular the changing competitive environment of the sugar industry. Queensland Sugar asserted it was now required to compete with its shareholders and former shareholders, like Wilmar, and therefore it was imperative to reduce the voting power of those competing shareholders.
The Court approached the dispute by examining the conduct of Queensland Sugar on an objective basis to determine whether their conduct in changing the constitution was oppressive, unfairly prejudicial or discriminatory against shareholders like Wilmar. The Court examined other cases involving the amended constitutions of other sugar companies and whether decisions were made to “justify” those amendments notwithstanding the claims of the shareholders.
However in this case Justice Yates, the presiding judge, was satisfied that “when considered objectively in the eyes of a commercial bystander having regard to the matters I have discussed … are such that reasonable members [of Queensland Sugar] would not have thought that the amendments to be fair.” [para 126] Justice Yates was satisfied that the relevant amendments to the company’s constitution were oppressive and they breached s.232(e) of the Corporations Act. One fact considered by the judge was that “competition” between the shareholders of the company existed before the changes to the constitution.
The decision may be the subject of an appeal.