The Corporate and Markets Advisory Committee
(CAMAC) report released on 29 January 2009
maintains the rights of aggrieved shareholders seeking to claim
against insolvent companies.
The report supports the 2007 High Court decision in Sons of
Gwalia which considered the conventional thinking that claims
by shareholders are postponed to claims by creditors in the winding
up of a company. The High Court had determined that, if a
shareholder claim was based on non-compliance with disclosure laws,
or some other corporate misconduct, then it was not a claim in the
shareholder's capacity "as a member of the company"
and would, as a consequence, rank equally with the claims of
CAMAC acknowledged the significant implications of the decision
on unsecured creditors, including for unsecured corporate debt
finance providers, who would have to compete with this class of
investors to participate in a fixed and often limited pool of
assets. Despite this, CAMAC has not recommended any legislative
action to alter or overturn the effect of the decision. This
recommendation has attracted much commentary, particularly from
insolvency administrators charged with determining and admitting
claims against companies in external administration. It is
acknowledged that this task is made more difficult in the days of
class actions and litigation funders.
Essentially, CAMAC considered that restricting an aggrieved
shareholder's rights of remedy, where a company is under
external administration, would undermine the legislative
initiatives designed to give a shareholder a right of action in
relation to corporate misconduct. It was noted that the threat of
such private actions augments the regulatory armoury to promote
corporate disclosure and an efficient and informed market.
The report noted that, even with the assistance of litigation
funders and class actions, aggrieved shareholders will still need
to overcome hurdles in substantiating their claims significantly
greater than those faced by traditional unsecured creditors.
Further, CAMAC referred to submissions which indicated that many
lenders have already taken steps after the decision was handed down
(such as increasing monitoring of borrowers, taking security or
entering into creditors' schemes of arrangement) in order to
protect their position against this threat of increased shareholder
action. By implication, CAMAC appears to consider that lenders must
first help themselves before expecting help in the form of
Also, CAMAC noted the additional complexities of dealing with
unsubstantiated shareholder claims and proposed various measures to
assist external administrations including:
a standardised proof of debt for claims by aggrieved
a rebuttable presumption that a determination in one proceeding
of a question of fact common to another aggrieved shareholder claim
will apply in any subsequent proceedings
giving the court a general power to make orders in a
liquidation, which would cover creditors' meetings and the
determination of shareholder claims.
We await any response from the Commonwealth Government following
the release of the report.
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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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