When Informal Corporate Governance Becomes Oppression: A Cautionary Tale for Family and Small Businesses

The Federal Court decision in Hurburgh v Hurburgh, in the matter of Richard Pitt & Sons Pty Ltd[1] provides an example of the need for family and small businesses to ensure company practices are fair for all shareholders. It highlights the risks associated with transitions of a company’s leadership, including the governmental and financial oversights that can result in litigation and deterioration of family relations.

Facts

At the centre of the case is Richard Pitt & Sons Pty Ltd (RBS), a farming company that owned several Tasmanian properties. Richard Pitt was the sole director and shareholder of RBS until his death in 2017, when his shares were equally distributed among Isabel Hurburgh (the first defendant) and her two children, Lisa Hurburgh (the plaintiff) and Alexander Hurburgh (the second defendant).

In June 2022, Isabel became the sole director of RBS.

Isabel and Alexander also owned and operated Glen Dhu Farming Pty Ltd (Glen Dhu), which operated the farming business on RBS’ properties.

Lisa brought a dispute against Isabel, Alexander and Glen Dhu alleging that RBS was managed in a manner oppressive or unfairly prejudicial to her as a minority shareholder.

The reasons given for the claim included the following.

The Loan

Firstly, RBS had obtained a loan of $2.4 million which had been treated as a personal debt of Richard’s estate. However, in 2025 Isabel caused the debt to be reclassified as a liability of RBS.

The loan was ultimately paid out through two loans from entities associated with Isabel.

Lisa alleged that this was oppressive given that, when Richard’s estate was distributed, the RBS shares were valued on the basis that they were debt-free; the reallocation of the debt therefore diminished the value of Lisa’s shares.

The Leases

Secondly, Glen Dhu leased RBS’ farming properties at below market value. Although it sub-let a number of cottages on the properties, the value of the cottages was excluded from the valuations upon which the rental price was calculated.

Upon learning of the nearly $449,000 shortfall, RBS offset the majority of the shortfall owed by Glen Dhu against the interest RBS owed Isabel’s entities under the $2.4 million loans and against the property improvement expenses incurred by Glen Dhu in relation to the leased properties.

Lisa argued that Glen Dhu’s rental shortfall, the offsetting of the rental shortfall against property improvement expenses (which she alleged were not owed by RBS, but were instead for Glen Dhu’s own benefit) and the fact that it had not passed the profit from the subleases onto RBS was contrary to the interests of the RBS shareholders as a whole and oppressive to Lisa individually.

Shareholder Meetings

Thirdly, no annual general meeting (AGM) of the shareholders had been held since the parties gained their shareholding, despite the company’s constitution requiring one each year.

Lisa argued that this reflected that the company’s affairs were operated in an oppressive manner, particularly given the ongoing disputes between the shareholders at the time.

Financial Statements

Finally, Lisa alleged that RBS’ financial statements for the 2023 and 2024 financial years had not been provided to her until after she commenced proceedings and that this contributed to the oppressive conduct.

Decision

Section 232 of the Corporations Act 2001 (Cth) (Act), empowers the Court to make an order if the conduct of the company’s affairs is:

a.     contrary to the interests of the members as a whole; or
b.     oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

Based on review of the prevailing authorities, Justice Neskovcin outlined that the phrase ‘oppressive to, unfairly prejudicial to, or unfairly discriminatory against’ is a composite term characterised by the essential criterion of commercial unfairness. ‘Fairness’, her Honour outlined, is determined according to the standards of a reasonable commercial bystander having regard to the context in which the conduct occurred.

Her Honour outlined that mismanagement or poor management are insufficient alone to prove oppressive conduct.

The Court also stressed that a section 232 claim is only available for corporate disputes and cannot be brought for ‘family law style disputes dressed up in a corporate guise… allowing a shareholder to require other shareholders to purchase their shares simply because there has been a breakdown in the trust and confidence between the shareholders.’

Notably, the grant of a remedy for oppressive conduct under section 233 is discretionary and should be moulded to end the oppression and compensate for any loss.

Based on these principles, the Court held that RBS’ affairs were oppressive to Lisa’s interests.

Regarding the $2.4 million loan, the Court found that, although the loan was in fact a liability of RBS, when Richard’s estate was distributed, it was done on the basis that the shares were free of the debt. Lisa therefore had a reasonable expectation that her shares would not be burdened by the liability, which, due to the conduct of the company’s affairs, was incorrect.

In relation to the leasing arrangements, the Court found that the failure to remit the sublease income back to RBS was oppressive on the basis that Isabel and Alexander (the people with control over both companies) had preferred their own interest over those of RBS and its third shareholder, Lisa.

However, the Court did not consider the offsetting of the rental shortfall to be improper, instead finding that the property improvements ultimately benefitted RBS as the property owner. Therefore offsetting the rental debt against that amount was reasonable.

Finally, Justice Neskovcin also concluded that the failure to hold AGMs and provide Lisa with the company’s financial statements contributed to conduct that, in its totality, was oppressive.

Contrastingly, the Court rejected Lisa’s argument that she was unfairly excluded from management given that she never sought directorship and actively requested to be bought out. She had no entitlement to be involved in the day-to-day management as she was only a shareholder, not a director.

Given these conclusions and the fact that the familial relationship had completely deteriorated, the Court ordered RBS to buy-back Lisa’s shares and reduce their share capital accordingly. They noted that if RBS was unable or unwilling to buy-back the shares, a winding up would become inevitable.

Takeaways

The case highlights the need for businesses to maintain good governance procedures, even if the members and directors have close relationships; while a breakdown in family relations may be unlikely, ensuring good governance is a necessary precaution to avoid later claims.

Additionally, the case acts as a reminder that related-party transactions should be concluded on fair terms. Informal agreements or those conducted on unfair commercial terms could deteriorate family relations or lead to potential claims.

Directors of all companies must separate their personal interests from company interests. Failure to do so could result in similar claims or personal liability for breach of directors’ duties.

Finally, oppression does not require malintent. In this instance, the Court found both Isabel and Alexander to have been honest, well-meaning people, however the legal test for oppression is objective, based on the standards of an independent person.

Should you be concerned about how a company is being managed or what action a company should take in specific circumstances Sladen Legal is available to assist in navigating your rights and options.

[1] [2026] FCA 361.