The Federal Government has also indicated an intention to amend the Corporations Act 2001 (the Act) to effectively reverse the High Court's 2007 decision in Sons of Gwalia v Margaretic (2007) 231 CLR 160 (Sons of Gwalia). In Sons of Gwalia, the High Court held that a compensation claim by a shareholder against the company for misleading conduct inducing the purchase of shares was not subordinated by s 563A of the Act and ranked equally with unsecured creditors.
The proposed amendments, which will subordinate such shareholder claims below unsecured creditors, are aimed at addressing the criticisms of the Sons of Gwalia decision and hope to:
- encourage debt investment in Australia
- reduce the uncertainty and costs associated with external administration
- limit the cost of debt finance for companies
- increase the prospects of being able to implement a successful restructuring.
While the proposed reforms will have significant implications for companies, insolvency practitioners and litigation funders, there has been no indication from the Federal Government as to whether the legislative amendments will be retrospective.
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