A Bill that reverses the Sons of Gwalia High Court decision and restores certainty to shareholders and creditors was passed by the Federal Parliament this week, said Parliamentary Secretary to the Treasurer, David Bradbury.
The Corporations Amendment (Sons of Gwalia) Bill 2010 reverses the High Court's decision in the Sons of Gwalia v Margaretic case, in which it was found that section 563A of the Corporations Act did not subordinate certain compensation claims by shareholders below the claims of other creditors.
The decision not only challenged the common understanding of the ranking of claims but it created uncertainty for unsecured lenders and restricted the availability of credit for businesses.
"These amendments give effect to the Gillard Government's decision to restore the common understanding of the subordination of claims prior to the Sons of Gwalia High Court decision," said Mr Bradbury.
"The High Court decision would have allowed certain shareholders to have their claims for damages against an insolvent company ranked alongside unsecured creditors.
"When someone makes a decision to invest in a company, they do so in the hope of sharing in the company's profits.
"Creditors, on the other hand, are simply owed money for services or work they have provided, or for a return of the credit that has been extended.
"The effect of the High Court decision meant that unsecured creditors were less willing to lend money, reducing the availability of credit and increasing the cost of borrowing for business.
"The amendments also streamline the treatment of shareholder claimants in an external administration and eliminate common law restrictions on the capacity of a shareholder to recover damages against a company.
"This is an important amendment to our Corporations Act that will restore certainty for shareholders and creditors and I welcome its passage through the Parliament."26 November 2010