Australia: shareholder claims against insolvent companies

In Sons of Gwalia Ltd v Margaretic [2007] HCA 1, the High Court held (by majority of 6 to 1) that a claim by a shareholder in respect of a loss caused by a company's misrepresentation or defective market disclosure which induced the purchase of shares ranked alongside the claims of unsecured creditors. This proved controversial because it was widely believed that such a claim would rank below the unsecured creditors because it was a claim by the shareholder as a member of the company (in accordance with Section 563A of the Corporations Act 2001).

The Government referred the matter to the Corporations and Markets Advisory Committee (CAMAC).  A discussion paper was published in 2007. The Committee's final report has now been published along with a summary of responses. The Committee has recommended no change in the position established by Sons of Gwalia. In doing so, it noted:

...the issue has arisen in the context of a significant shift in Australian corporate regulation. The provision to shareholders and others over recent years of direct rights of action in respect of corporate misconduct, and the strengthening of the regime for timely and reliable corporate reporting, reflect clear legislative objectives ... Any move to curtail the rights of recourse of aggrieved shareholders where a company is financially distressed could be seen as undermining the apparent legislative intent to empower shareholders".