NEW ZEALAND Law and Practice Contributed by: Graeme Quigley, Ashton Goatley and Erin Hickey, Webb Henderson
prior steps taken, the interests of the company, and whether the applicant may have ulterior motives ( Johnson v Johnson (2020) NZHC 1563). In Vijayaku- mar v Vasanthan (2021) NZHC 1827, the court noted that it was helpful in this respect to consider whether an experienced liquidator would bring the claim, given that they regularly decide whether to issue proceed - ings against directors. Additionally, the court may decline an application under Section 165 if a more effective alternative remedy exists under Section 174. Leave will only be granted if the court is satisfied that: • the company does not intend to bring, diligently continue or defend, or discontinue the proceedings itself; or • it is in the interests of the company that the pro - ceedings should not be left to the directors or to the determination of the shareholders as a whole. Sections 170 and 172 allow a shareholder to bring an action requiring a director or the company to take any action required to be taken by the directors or the company (respectively) under the Companies Act or the company’s constitution. In any of the above-mentioned proceedings, the court may appoint a representative shareholder where shareholders have the same or substantially the same interest. to avoid numerous proceedings in which the dispute in each case is essentially the same. Under Section 174, a present or former shareholder (or any other person on whom the constitution confers the rights of a shareholder) may take action against the company where the “affairs of the company” have been or are being or are likely to be conducted in a manner that is oppressive, unfairly discriminatory or unfairly prejudicial to them (Section 174). The refer - ence to conduct of the “affairs” of a company has been interpreted broadly, encompassing any conduct that generally concerns the company, and including non-compliance with specified provisions of the Com - panies Act. However, it does not include actions of directors or shareholders in a purely personal capacity ( Van der Fluit v O ’ Neill (2021) NZHC 1651).
What constitutes oppressive, unfairly discriminatory and unfairly prejudicial conduct was considered by the Court of Appeal in Thomas v HW Thomas Limited (1984) 1 NZLR 686 at [694]. It was said in this case that the three terms were not to be read as distinct but, rather, as overlapping terms that help to explain one another. The Court of Appeal in Latimer Holdings Limited v Sea Holdings NZ Limited (2005) 2 NZLR 328 at [138] further elaborated that “unfairness requires a visible departure from the standard of fair dealing, assessed in light of the history and structure of the company and the expectations of its members”. In Wilding v Te Mania Livestock (2017) NZHC 717, the High Court held that: • conduct need not be unlawful to be oppressive; • the inquiry concerns the effect of the conduct, not the intention of the parties; • the “just and equitable” aspect means plaintiffs should not have acted wrongly; and • remedies afforded under the section should be designed to best advantage shareholders as a whole. The court has a broad remedial discretion. However, a fairly calculated buyout offer made by the other par - ties involved may cure otherwise unfair or prejudicial conduct ( Birchfield v Birchfield Holdings Ltd (2021) NZCA 428). Company Enforcement The company (under the direction of its board) may bring an action against a director or former director for breach of a duty owed by that director to the com - pany. If the directors do not resolve to do so (eg, if a majority of the board was complicit in the breach), a shareholder or director can apply to the court for leave to bring an action on behalf of the company in the above-mentioned manner. Consequences Breaches of the above-mentioned directors’ duties generally attract civil liability (although a number of the administrative provisions of the Companies Act attract criminal liability). The following are two key exceptions.
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