Sons of Gwalia to be reversed through legislative intervention

Publications >Sons of Gwalia to be reversed through legislative intervention

 

In the case of Sons of Gwalia Ltd v Margaretic [2007] HCA 1 (Sons of Gwalia) the High Court held that shareholders’ whose losses arose because of a company’s inadequate disclosure or misrepresentation would rank equally with the debts of unsecured creditors, thus raising the status of aggrieved shareholders to those of unsecured creditors on liquidation.

 

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, announced a package of reforms to Australia's corporate insolvency regime on 19 January 2010.  Among the mooted reforms is a plan to amend the Corporations Act 2001 (Cth) to reverse the effect of the High Court's decision in Sons of Gwalia.  In a statement on his website, Minister Bowen said

 

'Any direct benefits to aggrieved shareholders arising from non-subordination are outweighed by the negative impacts on shareholders generally as a result of restrictions on access to, and increases in, the cost of debt financing for companies,’ 'The Government also remains concerned that the Sons of Gwalia decision has the potential to further increase uncertainty and costs of associated with external administration.

 

Minister Bowen released a discussion paper on the operation of Australia's insolvent trading laws in the context of attempts at business rescue outside of external administration. It is available at his website: http://www.chrisbowen.net

 

 

 

Malcolm Burrows B.Bus.,MBA.,LL.B.,GDLP.,MQLS

Associate

 

"The information contained in this article is general in nature and cannot be regarded as anything more than general comment.  Readers of this article should not act on the basis of this comment without consulting one of Rostron Carlyle's legal practitioners who will consider their particular circumstances".

 

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