Gambotto and expropriation of shares PDF

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Summary

How to deal with Gambotto issues...

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Gambotto - Expropriation of Shares test (Category 1 Test) - Applies when there is an amendment to constitution proposing to expropriate shares held by minority members or their share rights

1. When will the amendments be valid? Only valid if amendment is for a proper purpose and there is no oppression of minority

2. Is amendment for proper purpose? -If purpose of amendment is to prevent significant detriment or harm being done to the company because of a minority shareholder – Valid (Grey and Bundaberg)

(a) purpose of complying with law e.g. removal of a member is necessary to allow company to continue in present business (no money making or commercial motives)

(b) company faces immediate problem and threat, not future threat e.g. Minority shareholder is competing with the company

3. Is there oppression of minority shareholders?

(a) Procedural Fairness - Is all relevant information relating to amendment disclosed? - Requires an independent valuation of shares to be expropriated

(b) Substantive Fairness - Is the price for the expropriated shares actually fair? - e.g. Market value, but also take into consideration nature of firm and its likely future and how that could influence share price

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“If all of the above are satisfied, the amendment to expropriate minority’s shares will be valid”...