The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, today introduced a Bill into Parliament to give effect to the Government's decision to reverse the High Court's decision in Sons of Gwalia v Margaretic.
The Sons of Gwalia decision determined that, in a corporate insolvency, certain shareholder claims against a company ranked equally with the claims of other unsecured creditors.
"This Bill returns the order of claims in a corporate winding-up to the situation that was commonly understood to exist prior to the Sons of Gwalia judgment," Mr Bowen said.
"It is inequitable for shareholder claimants to rank as creditors alongside ordinary unsecured creditors, like small businesses.
"While investors who have been misled into making an investment should rightly be able to claim redress, they should not be able to do so at the expense of creditors - who are often simply owed money for work they have already done, or for materials they have supplied.
"The uncertainty created by the Sons of Gwalia decision had also increased the cost - and limited the availability - of credit, to the detriment of companies and their shareholders."
The Bill also makes procedural reforms relating to notices to creditors and shareholder voting, designed to remove a cost burden on companies in external administration, and will clarify the position of shareholders bringing claims for damages against companies.
Specifically, the Bill removes the right of persons bringing claims regarding shareholdings to:
- vote as creditors in a voluntary administration or a winding-up, unless they receive permission from the Court; or
- receive reports to creditors, unless they make a request in writing to the external administrator.
It also eliminates some antiquated restrictions on the capacity of a shareholder to recover damages against a company based on how they acquired the shares or whether they still hold the shares.
The reforms are being implemented through the Corporations Amendment (Sons of Gwalia) Bill 2010.
2 June 2010