Can company directors be personally liable for shareholder oppression? The Full Federal Court confirms they can.

When shareholder oppression becomes personal liability

Company directors who engage in shareholder oppression may be required to compensate affected shareholders personally, even where the company has subsequently entered liquidation.

In Aulich v Scott [2026] FCAFC 139, the Full Federal Court upheld orders requiring 2 directors to personally compensate a minority shareholder after deliberately diluting her interests in 2 companies.

The decision confirms that the remedies available under section 233 of the Corporations Act 2001 (Cth) (Corporations Act) are not confined to orders against the company or conventional shareholder buyouts. In appropriate circumstances, directors themselves may be required to compensate shareholders for the financial consequences of oppressive conduct.

While Australian courts have previously recognised the availability of personal financial orders against directors, Aulich v Scott is particularly significant because the Court upheld direct compensation for the loss in value of a shareholder’s interests, notwithstanding the subsequent financial deterioration of the companies.

The dispute: deliberate dilution of a minority shareholder

Joanna Scott held minority shareholdings in Aulich Civil Law Pty Ltd (ACL) and Aulich Property Trading Pty Ltd (APT). In March 2020, Ms Scott indicated that she wished to exit the businesses and have her shares purchased at fair value. Instead, the directors, Mr Benjamin Aulich and Mr Peter Woodhouse, caused the companies to issue substantial numbers of additional shares. The directors maintained that the share issues were legitimate capital raisings undertaken in response to financial uncertainty arising from the COVID-19 pandemic. However, contemporaneous correspondence revealed that Mr Aulich had expressly contemplated reducing Ms Scott’s shareholding to a negligible percentage.

The Court also identified significant deficiencies in the commercial justification for the transactions, including the nominal issue price of $1.00 per share, the use of funds already circulating within the corporate group and the failure to pursue alternative funding arrangements.

The primary judge found that the principal purpose of the share issues was to dilute Ms Scott’s interests, rather than raise capital for a genuine commercial purpose. The Full Federal Court upheld that finding, concluding that the conduct constituted shareholder oppression under section 232(e) of the Corporations Act.

However, the more significant question was whether the directors could be held personally responsible for the resulting financial loss.

Can directors be ordered to personally compensate shareholders?

Yes.

Section 233 of the Corporations Act gives the Court broad powers to make orders where shareholder oppression is established. Although the most common remedy is an order requiring the purchase of an oppressed shareholder’s shares, section 233 is not limited to compulsory buyouts. The Court may make any order it considers appropriate to remedy the oppression, including orders directed against the individuals responsible.

In Aulich v Scott, the primary judge ordered Mr Aulich and Mr Woodhouse to personally compensate Ms Scott, jointly and severally, for the diminution in value of her shareholdings. The Full Federal Court upheld that remedy, confirming that section 233 was sufficiently broad to authorise a direct compensation order against directors. The Court acknowledged that such relief was exceptional, but found that it was appropriate in the circumstances.

Have Australian courts previously imposed personal liability for shareholder oppression?

The possibility of personal financial orders against directors is not new. Australian courts have long recognised that the oppression remedy is flexible and is not confined to orders against the company itself.

In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97, the New South Wales Court of Appeal considered the broad remedial powers available in oppression proceedings, including financial relief directed against directors in circumstances involving the misuse of a corporate opportunity.

The issue was considered more directly in LPD Holdings (Aust) Pty Ltd v Phillips [2013] QSC 225, where the Queensland Supreme Court recognised that section 233 could permit an order requiring directors to compensate an oppressed shareholder personally, provided the shareholder’s loss was distinct from a loss suffered by the company.

These authorities established an important distinction between a shareholder’s personal loss and a loss suffered by the company, which would ordinarily need to be pursued through the appropriate corporate remedies.

What makes Aulich v Scott different?

The significance of Aulich v Scott lies in the remedy actually upheld. The Full Federal Court confirmed that directors could be required to personally compensate a minority shareholder for the diminution in value of her shares caused by oppressive conduct.

Importantly, the Court upheld that remedy despite the subsequent financial difficulties of the companies. The decision therefore provides appellate authority for the availability of direct personal compensation under section 233 in circumstances where a shareholder has suffered an identifiable loss as a result of oppression. It also demonstrates that the Court’s powers may provide an effective remedy where a conventional share buyout is no longer commercially practical.

Does liquidation protect directors from personal liability?

Not necessarily.

This was one of the most important aspects of the appeal. By the time of the proceedings, ACL had entered liquidation and APT had ceased trading. The directors argued that the subsequent financial deterioration of the companies meant that the oppression had ended and that personal compensation was inappropriate.

The Full Federal Court rejected that argument. The Court distinguished between the cessation of oppressive conduct and the continuing consequences of that conduct. Although the share issues had occurred years earlier, Ms Scott had already suffered a substantial reduction in the value of her shareholdings. The companies’ subsequent financial difficulties, which were unrelated to the oppression, did not eliminate that loss.

The Court accepted that liquidation or external administration may often make oppression relief inappropriate. However, those circumstances do not automatically prevent relief where the consequences of earlier oppressive conduct remain unremedied. In this case, the directors could still be required to compensate Ms Scott personally.

How was the directors’ liability assessed?

The compensation was assessed by reference to the diminution in value of Ms Scott’s shareholdings at the time of the oppressive share issues. The directors argued that Ms Scott had not established a compensable loss because she could not demonstrate that she would have been able to sell her shares to a third party. The Full Federal Court rejected that argument.

The compensation was not assessed as damages for a lost opportunity to sell shares. Rather, the remedy reflected the position Ms Scott would have occupied had appropriate compulsory buyout relief been granted when the oppression occurred. The assessment also accounted for benefits she had subsequently received.

What does this mean for company directors?

Aulich v Scott reinforces that directors cannot necessarily rely on the corporate structure to shield themselves from the financial consequences of oppressive conduct. Where directors misuse their powers to unfairly disadvantage a minority shareholder, the Court may impose a remedy directly against them. The decision is particularly relevant to closely held companies, where disputes between shareholders frequently arise in connection with capital raisings, ownership interests and control of the business.

Directors should be conscious that:

1. A share issue may constitute oppression even where it is authorised by the company’s constitution;
2. Offering additional shares proportionately to existing shareholders does not necessarily make the transaction commercially fair;
3. The commercial justification for a capital raising must withstand objective scrutiny;
4. The Court’s powers under section 233 are not confined to orders against the company; and
5. In exceptional circumstances, directors may be personally liable to compensate shareholders, even after the company enters liquidation.

Importantly, personal liability is not an automatic consequence of establishing shareholder oppression. Whether such an order is appropriate will depend on the nature of the conduct, the loss suffered and the relief necessary to remedy its consequences.

The key takeaway: shareholder oppression can have personal consequences

Aulich v Scott [2026] FCAFC 139 confirms that shareholder oppression is not necessarily a liability that remains within the company. Although earlier authorities recognised the possibility of personal financial orders against directors, the Full Federal Court has now upheld a direct compensation order requiring directors to personally compensate a minority shareholder for the loss caused by oppressive share dilution. The subsequent liquidation of the company did not prevent that relief.

For company directors, the message is clear: where corporate powers are exercised oppressively, the financial consequences may extend beyond the company and fall directly on those responsible.

How Dark Legal can assist

Dark Legal advises companies, directors and shareholders in relation to shareholder disputes, corporate governance and commercial litigation.

We assist clients with minority shareholder oppression claims, improper share dilution, breaches of directors’ duties and applications for relief under the Corporations Act.

If you are involved in a shareholder dispute or are concerned about potential personal liability arising from decisions made as a company director, contact Dark Legal to discuss your legal position.