Bundaberg Sugar Ltd v Isis Central Sugar Mill Co Ltd [2007] 2 Qd R 214
Company law; internal governance rules; expropriation of shares
Facts: ISIS Central Sugar Mill (ISIS) was a co-operative company which, as such, enjoyed substantial taxation benefits. Its co-operative status required that its shareholders be persons who supplied it with sugar. The internal governance rules of ISIS provided that, if a shareholder ceased to be a supplier of sugar, it could be ordered by the directors to forfeit (dispose of) their shares. Bundaberg Sugar Ltd owned shares in ISIS and for a period supplied sugar cane to ISIS. When Bundaberg ceased to be a supplier, ISIS required that Bundaberg divest itself of its shares in ISIS. Bundaberg challenged the requirement that they forfeit their shares, arguing that the provisions were oppressive.
Issue: Were the internal governance rules requiring Bundaberg to dispose of their shares justified by the circumstances and therefore not oppressive?
Decision: In the circumstances, requiring the forfeiture of shares was not oppressive.
Reason: If proper compensation for the shares was received by the former shareholder (by selling them at the market price for the benefit of the shareholder) the provisions were reasonable. Chesterman J said (at 233):
The continued shareholding by persons who do not supply sugar cane to the defendant would be detrimental to the company and the conduct of its affairs (the loss of the valuable tax deductions) if it were to lose its co-operative status. It is reasonable for it to preserve that status by doing business only with its members. To that end it forfeits the shares of members who cease to supply it with sugar cane.