In short
In Aulich v Scott directors issued shares at $1 each, offered to every shareholder, to reduce a 25% shareholder who wanted to be bought out to almost nothing. The Full Federal Court upheld the finding of oppression, and the order that two directors compensate her personally although one company was in liquidation.
- A power in the constitution does not answer whether a share issue is fair.
- The courts looked for a genuine commercial reason and found none.
- Judgment against the two directors was $715,146.16 including interest.
What happened
Three lawyers whose Canberra law practice ran through a group of companies used share issues in two of them to reduce a 25% shareholder to almost nothing after she asked to be bought out, and two of them were ordered to pay her personally. Ms Scott held a quarter of those two companies, Aulich Civil Law and Aulich Property Trading. The other three quarters were held through companies associated with the three directors, Mr Aulich, Mr Woodhouse and Ms Taylor. Ms Scott was never an officer or employee of either company.
HeldCharlesworth, Goodman and Neskovcin JJ. No error in the finding that share issues made principally to dilute a minority shareholder, with no genuine commercial rationale, were oppressive under section 232 of the Corporations Act, and no error in ordering the two directors to compensate her personally under section 233. Appeal dismissed with costs.
The trial judge, Stewart J, gave judgment in October 2025. After the parties exchanged proposed orders he entered judgment against Mr Aulich and Mr Woodhouse, jointly and severally, for $715,146.16 including interest, as his later costs judgment records. Ms Taylor had resolved the claims against her before trial. The Full Court dismissed the directors' appeal.
Law current at 2 November 2026. The Full Court's decision was handed down on 30 October 2026. It remains open to the directors to seek special leave to appeal to the High Court; at the time of writing no application had been announced.
The share issues
Six weeks after Ms Scott asked to be bought out, the directors issued 99,900 new shares at $1 each, offered to every shareholder in proportion to their holding. On 12 March 2020 her husband wrote that the best way forward was for the other shareholders to buy her out, on any timing that suited them. The directors did not answer that request. In late March, citing cash flow projections prepared as the COVID-19 pandemic arrived, Mr Aulich told her a cash call on all shareholders was coming.
On 25 March 2020 Mr Aulich set out the plan in an email to his two co-directors. "He" and "him" are Ms Scott's husband, whom the directors treated as the real holder of her interest:
Then we end up with 99,975 shares held by us and 25 shares held by him. So for every $100k we distribute we have to give him $25. That’s kinda cool.
Email of 25 March 2020, set out at [2026] FCAFC 139 [98].
The directors resolved the issue on 1 April 2020. Ms Scott declined her allocation, the other shareholders took it up, and on 24 April she held 25 of 100,000 shares. In 2021 the directors ran the same process in the conveyancing company, issuing 40,000 shares at $1. The trial judge recorded that her interest in Aulich Civil Law went "from 25% to 0.025% (and $710,800 to $711)".
The test is objective, but motive counts
The question under section 232 is whether the conduct was so unfair that reasonable directors considering it would not have thought it fair; the directors' motive does not decide that, but proof of an aim to harm a member makes unfairness easier to find. Section 232 of the Corporations Act 2001 (Cth) lets the court intervene where the conduct of a company's affairs is oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member. Section 233 then empowers the court to make any order it considers appropriate in relation to the company.
The Full Court restated the settled approach. Unfairness is judged objectively, through the eyes of a commercial bystander, in the particular context, and it is the effect of the conduct that matters. Conduct that benefits the company can still be unfair. Where the decision-maker set out to treat a member unfairly, a court can more readily conclude that the effect was the one intended.
On appeal the directors did not challenge the finding that their motive was to dilute Ms Scott. They argued that the trial judge had looked at motive instead of at objective fairness. The Full Court held that weighing the directors' purpose was "entirely orthodox", and that the absence of a commercial justification was a principal part of the judge's assessment of objective unfairness.
A power in the constitution does not answer the question
A constitution that lets directors issue shares at any time, on any terms and at any price does not make a particular issue fair. The Aulich Civil Law constitution gave the directors that power, and required new shares to be offered first to existing shareholders in proportion to their holdings unless the members resolved otherwise. That mirrors the replaceable rule in section 254D, which applies to a proprietary company unless its constitution displaces it. The directors argued the power, and the offer, were complete answers. The Full Court rejected that:
Constitutional authority to allot shares does not answer the oppression question. The power to allot shares is fiduciary in nature and is conferred primarily to enable capital to be raised.
[2026] FCAFC 139 [139].
The pro rata offer did not save the issues either. It was accepted that Ms Scott had notice and could have participated. But she had said she wanted to leave, and the trial judge held that "Forcing Ms Scott to the choice between making a further contribution of capital to the company or having her shareholding devastatingly diluted was not in any way responsive to her legitimate wishes; it was antithetical to them." The Full Court found that unremarkable, because "The directors ignored that request".
This does not mean every rights issue that dilutes a non-subscribing shareholder is oppressive. The trial judge accepted that the court "will thus be slow to question a bona fide management decision honestly arrived at". What carried the finding was a dilutive purpose that went unchallenged, together with the absence of any genuine commercial reason.
What showed there was no commercial reason
The courts tested the directors' stated reason, an urgent need for capital, against what the directors actually knew and did, and found it did not hold. The directors were genuinely worried about the pandemic, and the trial judge accepted that. Fairness was judged on what they knew at the time, not on the later finding that the businesses came through well. Even on that footing, the evidence pointed the other way.
| Question | What the evidence showed | Where |
|---|---|---|
| Which company needed money? | The concern was the whole group, yet in 2020 capital was raised in Aulich Civil Law alone, which the directors' own projections showed to be the best placed company in the group | FCAFC [110] to [115] |
| Did new money come in? | No. The shares were paid for with tax savings drawn from another group company, so existing funds were recirculated | FCAFC [126] to [129] |
| Were alternatives considered? | Ms Scott's husband offered the company an interest-free loan, conditional on agreeing a buy-out figure. The directors refused it, which sat poorly with an urgent need for working capital | FCAFC [130] |
| Were the figures revisited? | No revision after government support measures were announced, although the external accountant had drawn them to the directors' attention | FCAFC [132] to [134] |
| Was the price considered? | $1 a share against roughly $20,000 a share on net asset value, with no explanation for issuing 99,900 shares rather than a less dilutive structure | FCAFC [141] to [143] |
| What did the directors think her stake was worth? | $500,000 to $550,000, judging by what a fellow director had paid for a 25% interest shortly before | FCAFC [19], [144] |
| Did the decision-maker explain himself? | No. Mr Aulich did not give evidence, and the trial judge inferred, as the Full Court accepted, that his evidence would not have helped | FCAFC [64], [103] |
The trial judge's conclusion on the first share issue was blunt:
This is a case where the purpose of the capital raisings was not to raise capital but to inflict prejudice on a minority shareholder, and that purpose was achieved.
[2025] FCA 1329 [112].
For the 2021 issue the figures were closer. The judge accepted it was "not outside the realm of possibility" that there was a reasonable business case, but no explanation was given beyond the financial statements, and he drew the inference from the year before.
Wanting to leave does not oblige anyone to buy
Ms Scott had no right to make the others buy her shares, and the courts did not find that refusing to buy was oppressive; what they found oppressive was the dilution. The constitution gave her no right to compel a buy-out, and there was no market for her shares. She was not a party to the shareholders' agreements, because her shares were held on trust for her, so no contractual exit route helped her either.
The applicant's own conduct is weighed too, and can make prejudicial conduct fair. The directors pointed out that Ms Scott did not attend the meeting for the second issue, ask questions, or seek information, and the trial judge found two of her three stated reasons for declining the first offer unreasonable. It did not change the result, because the directors already knew she opposed contributing further capital. As the judge put it, "It was not the case that there was mute acquiescence from Ms Scott."
Why the directors paid, and not the company
The usual responses to a share issue made for an improper purpose are to restrain it, to set it aside, or to order the majority to buy the minority out; compensation from the directors personally was ordered here because the companies had failed and those remedies had become pointless. Ms Scott originally sought a buy-out, orders setting aside the share issues, and the winding up of the companies. By late 2024 one company was in liquidation and the other was expected to follow; by trial it was common ground that the shares in both were "practically worthless".
She therefore amended, the trial judge records, because the alternatives "would be of dubious value in the circumstances", and sought compensation directly from the directors. The power to make that kind of order had been recognised in principle in a 2013 Queensland decision, for loss that is the shareholder's own rather than derivative of the company's. Both courts recorded that, on counsel's research, this was nevertheless the first time it had actually been ordered in Australia. The Full Court described the remedy as novel, and went on:
However, as the appellants also acknowledged, the Court’s power under s 233 is broad and includes the power to remedy oppression by way of an order for compensation against the directors of the company.
[2026] FCAFC 139 [184].
The power was therefore conceded rather than argued. The novelty lies in the order, not in the finding. Earlier decisions, which the trial judge cited, had already recognised that a share issue made to shrink a minority's proportion can be oppressive, the more so in a small company whose owners expected to be equal.
The order reached only Ms Scott's own loss, the shrinking of her proportion of each company, which both sides accepted was not a reflection of any loss suffered by the companies. Where directors damage the company itself, the loss belongs to the company and is pursued on its behalf, by a derivative action with the court's leave under sections 236 and 237. Where the line falls between a shareholder's own loss and the company's is unsettled in Australia. Our note on Cooper v Myrtace Consulting covers a case in which that leave was refused. The directors' statutory duty to act for a proper purpose under section 181 exposes them to a civil penalty, which only ASIC can seek, and to compensation payable to the company, which ASIC or the company can seek; neither is a payment to a shareholder. Our guide to directors' duties in Australia sets out those duties.
The company's collapse did not end the claim
The oppressive conduct had stopped, but its effect had not, and the Full Court held there is no starting position against relief merely because the oppression is over. Aulich Civil Law went into administration and then a creditors' voluntary winding up in 2024. Both courts accepted that its demise had nothing to do with Ms Scott's claim. The directors argued that the liquidation had ended the oppression, so no relief should be given.
The Full Court accepted that relief under section 233 is rare once a company is being wound up. In a liquidation, proceedings against the company need the court's leave (section 500(2) for a voluntary winding up) and share transfers need the liquidator's consent or a court order (section 493A), so a buy-out order confronts the statute. But the claim against the directors personally was not caught by those provisions, and the trial judge "distinguished between ongoing oppression and the ongoing effects of the oppressive conduct". The oppression had not caused the liquidation, but it was why Ms Scott had never been able to realise anything for her shares.
The High Court has left open whether the power to grant relief survives once the oppression has ended. The Full Court did not need to resolve it: the significance of the conduct having ended depends on the individual case.
How the compensation was measured
The directors were ordered to pay what a buy-out at the time of each dilution would have paid, less the dividends she later received, with interest. In the trial judge's words, "the oppressive conduct denied Ms Scott the buyout of all her shares at fair value". For Aulich Civil Law, an unchallenged expert valued her 25% at $710,800 before the issue. She claimed only $500,000, the figure the directors had themselves discussed. For Aulich Property Trading, her 25% was valued at $33,860.
| Element | Position |
|---|---|
| Measure | The value of her shareholding immediately before each dilution, as if a buy-out had been ordered then |
| Aulich Civil Law | $500,000, as claimed, below the unchallenged expert value of $710,800 |
| Aulich Property Trading | $33,860 on net assets of $135,439 |
| Deductions | Dividends received after each dilution, with notional interest on them |
| Interest | Pre-judgment interest from April 2020 and May 2021 |
| Judgment | $715,146.16 including interest, against both directors jointly and severally |
On appeal the directors said there was no market for a minority stake and no right in the constitution to force a buy-out, so her shares were worth less. The Full Court rejected that, partly because it was not a ground of appeal and the expert valuation had gone unchallenged. It also held the award was not compensation for a lost chance to sell and did not punish the directors. The delay was "principally explained by the appellants’ unmeritorious defence of the action".
Only a registered member can bring the claim
Under section 234 an oppression application is made by a member, which means a person entered on the register of members, so an investor holding through a nominee depends on the registered holder. Section 234 also allows a few others to apply, such as a former member complaining about how they ceased to be one. From 2012 Ms Scott's shares were held on trust for her by a company associated with Mr Woodhouse, so that her husband's interest would stay private. In April 2020 Mr Aulich insisted that she be registered as the direct holder, which the trial judge found was aimed at her husband.
That step, taken against her, is why she held her shares in her own name when she sued. The judgments do not say how a claim brought from behind the nominee would have fared, and this article does not either. The structural point stands: a beneficial owner is outside both the shareholders' agreement and the register, and holding through a nominee, an arrangement sometimes used by overseas investors, joint venture partners and silent investors, needs its own protections.
What the decision does not decide
The Full Court reviewed a trial judge's evaluation for error, on facts where the dilutive motive was not contested, so several questions remain open. The parties agreed that the appeal was governed by the standard for discretionary decisions, so the directors had to show an error of principle or a plainly unjust result. The Full Court applied that standard because the parties agreed to it and because earlier Full Court authority supports it; it did not revisit the question.
| Question | Position |
|---|---|
| Whether constitutional authority to issue shares answers an oppression claim | Decided by the Full Court: it does not |
| Whether relief is presumptively unavailable once the oppression has ended | Decided by the Full Court: there is no such starting position |
| Whether section 233 permits compensation from directors to a shareholder | Stated by the Full Court, on a point the directors conceded |
| Whether the court's power survives once oppression has ended | Left open by the High Court; not resolved here |
| Where the line falls between a shareholder's own loss and the company's | Not in issue: both sides accepted the loss was hers |
| Whether the compensation should be reduced because a minority stake had no exit right and no market | Rejected: the measure was a buy-out entitlement, which does not depend on a put option or a market; the point was also not a ground of appeal and the expert valuation was unchallenged |
| Whether a director who voted for the issue but took none of the new shares would be liable | Not considered: both directors' companies took up the shares she declined |
| The standard of appellate review for oppression findings | Applied by agreement, following earlier Full Court authority; not revisited |
The Corporations Act is Commonwealth legislation. Under the High Court's ruling in Farah Constructions, a State or Territory court will follow the Full Court's statements of principle on it unless convinced they are plainly wrong. The Act sets no limitation period for an oppression application, but delay is weighed in the court's discretion.
If you are a director or majority shareholder
A capital raising that dilutes a shareholder who wants out will be judged on the record you make at the time, and the bill can land on you personally. The points below are drawn from what the courts relied on; none is a statutory checklist. Capital raisings are covered on our corporate and commercial law page, and our guide to raising equity capital in Australia covers the mechanics.
- Show the need. Use current figures, revisit them when circumstances change, and record why this company, rather than another in the group, needs the money.
- Consider the alternatives. Record why loans, including any offered by the minority, were or were not taken.
- Price the shares. Record why the issue price and the number of shares were chosen against what the company is worth.
- Answer an exit request. You need not buy, but a dilutive raise that follows an unanswered request is likely to be read against it, as it was here.
- Tell every shareholder why. The courts did not hold that an explanation is legally required. Giving one is the obvious way to show a commercial reason.
- Write as if a judge will read it. The directors' own emails were the most telling evidence in this case.
- Expect to give evidence. When the director who drove the decision stays silent, the court can infer that director's evidence would not have helped.
Mr Woodhouse, who had preferred a peaceful parting and was willing to borrow to buy Ms Scott out, is liable jointly and severally for the whole sum. Where a court finds an improper purpose of this kind, directors should not assume the company can indemnify them for a payment to a shareholder: section 199A bars an indemnity for a liability owed to someone other than the company that did not arise from conduct in good faith. Whether insurance responds depends on the policy.
If you hold a minority stake
Put your position in writing, ask for the figures, and make sure your exit and anti-dilution rights are in a document you are a party to. Her husband's written request on her behalf to be bought out, and his reply to the first cash call, were what the trial judge relied on to reject the argument that she had acquiesced. A shareholder who says nothing gives the other side that argument.
The better protection is contractual and comes earlier. A shareholders' agreement can give a departing shareholder a put option and a valuation method, and can restrict issues of new shares without consent, which turns a dispute like this one into a question of contract rather than a statutory claim heard years later. Our guide to shareholders agreements in Australia explains what the document can and cannot do, and our note on a shareholder who fails to perform covers the other side of a capital call.
For a German parent or investor holding Australian shares through a local nominee, the standing point in this case is the one to check first. Our Frankfurt office advises German-speaking shareholders in German, and our commercial litigation page covers what happens once a dispute has begun.
