6.3.1 Rationale of the oppression/unfair prejudice remedy

The oppression remedy was developed because of the inadequacy of minority shareholder protection provided by the codified law and common law. In the company law, the appraisal remedy alone is an inadequate remedy to solve the illiquidity problem in a close company. Firstly, the appraisal remedy is a rulebased remedy. As all the other rule-based remedies, the conditions laid down in the appraisal remedy are likely to be circumvented by deliberately designed transactions. Secondly, the appraisal remedy focuses on the structural changes within a company, but the desire for exit relief sterns not only from disagreement on business operations, like mergers and amendments of the articles of association, but can also stem from dissatisfaction with oppression, for instance exclusion from management and no dividend distribution. As a result, the oppression remedy, which could respond to oppressive conduct by the directors or those in control, is needed and justified. Historically, the oppression remedies in both the UK and US originated from the dissolution remedy.1 But this remedy was hardly utilized because the court opined that dissolution was too harsh a remedy and the oppressive conduct must have been serious enough for dissolution. Later, alternative forms of relief developed to deal with less serious but more frequently occurring oppressive conduct.

The oppression remedy is also needed on account of insufficient protection from the common law. According to the common law, majority shareholders do not owe fiduciary duties to the minority shareholders, which means that so long as the majority behaved in conformity with their legal rights provided by law, they were not liable for any claim. This conception was changed with the development of the oppression remedy. When the link between oppression and dissolution was severed and a court ordered buyout appeared, the scope of the remedy broadened.2 Fiduciary duties were imposed on majority shareholders and breaches of the duties could lead to liability. The development of the remedy removed restrictions from the common law. Or we can say because of the restrictions in common law, to strengthen minority shareholder protection, statutory remedies appeared and, in consequence, the oppression remedy evolved further.

In sum, with the aim to protect minority shareholders, especially those in close companies, the oppression remedy has broken through the traditional limitations in common law, outgrown its dissolution origin and evolved into the oppression/unfair prejudice remedy today by which a court-ordered buyout is the most frequently granted relief.