In recent months, Brown Family Farming Pty Ltd experienced a lot of internal friction between the company’s ten (10) shareholders. You have been called in to help identify possible causes of action that would help aggrieved members seek legal relief for breaches of general law and/or statutory rules aimed at protecting minority members against harmful conduct of majority shareholders.

Brown Family Farming Pty Ltd (BFF) was registered in 2010 by the Brown family for the purpose of managing the family’s successful farming business. According to ASIC records, each of the ten family members (6 brothers and 4 first cousins) are registered as equal shareholders and directors in BFF. Furthermore, due to a restriction in the company constitution, shareholders are prevented from selling or transferring their shares in BFF to anyone outside the remaining shareholders.

Although the family members have not always agreed on everything, they have always allowed each member to participate equally in all company and business decisions. However, since mid-2020, the four cousins learned that the Brown brothers used the Covid lockdowns as an excuse to improperly exclude their cousins from attending board meetings and participate in managing the company’s affairs.

Furthermore, the four cousins recently learned that two of the Brown brothers (Sam and Neil Brown), used $50,000 of company funds to make unauthorised investments in high risk shares on behalf of the company (which ultimately failed). To make matters worse, Sam and Neil persuaded their four brothers to forgive the $50,000 loss, claiming that Sam and Neil ‘were only trying to help’. As a result, the cousins are unable to stand up to the 6 Brown brothers who, as a majority, refuse to take legal action against Sam and Neil to compensate the company for the money they lost.

Required:

Q1 Mutual trust has broken down between the two family groups. The four cousins wish to cut all ties with the company. Briefly explain some of the problems they face if they tried to leave and why they need the Court’s help to overcome this situation. (20 marks)

Q2 Advise the four Brown cousins about possible common law and statutory causes of action that would help them stand up to the majority shareholders. For each suggested legal action, also suggest related legal remedies. You must refer to relevant case law and sections in the Corporations Act. You must explain how each cause of action will impact and help the four cousins. (80 marks)

Answer rating: 100% (QA)

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