Our clients must be sick to death about hearing us comment on
the Australian Sons of Gwalia saga (which we have been doing for
more than three years) but finally there is good news to report.
The short version of the saga is that Sons of Gwalia was a
decision by Australia's highest court that shareholder damages
claims should be treated as pari passu unsecured claims in
an Australian insolvency proceeding. In contrast, in US bankruptcy
cases Bankruptcy Code section 510(b) treats shareholder damages
claims as having the same priority as common stock interests
(i.e., behind all debt claims).
When last we commented on Sons of Gwalia in May 2010
(click here), we reported on proposed legislation to
reverse the Sons of Gwalia decision. Alas, there was a
setback due to elections, but the legislation was subsequently
resubmitted. The excellent news is that the legislation has now
passed both Houses of Parliament and it will formally become law
upon Royal Assent. (In Australia, "Royal Assent" means
that the Queen's representative in Australia, the Governor
General, formally signs legislation into law, which typically
occurs in a matter of weeks after the legislation is
The new legislation is crystal clear – creditors are
creditors and shareholders are shareholders, and no longer shall
the twain meet in Australian insolvency proceedings. And lest there
be any doubt, the formal title of the legislation even references
"Sons of Gwalia" and can be found here: Corporations Amendment (Sons of Gwalia) Bill
The only other item to note in the legislation is that it is
prospective only, meaning that it will only apply to shareholder
damages claims arising after enactment. As a result, the
legislation does not apply to pending shareholder lawsuits such as
those against Centro Properties (CNP) and Centro Retail Trust
So the Sons of Gwalia are dead, and long live the Queen!
P.S. For those of you not aware of it, we have a blog where this
will also be posted. It is called Basis Points and can be
found at http://basis-points.com. You will note
in the upper left of the blog that you can choose to receive
automatic updates via Email, RSS or Twitter. And in the spirit of
the "Poems" column on the blog:
Sons of Gwalia
Shareholders are creditors?
Nope, not anymore!
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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