The Corporations and Markets Advisory Committee (CAMAC) has released its report Claims by shareholders against insolvent companies: implications of the Sons of Gwalia decision.

The report responds to a request for advice by the Government on the effect of the High Court decision in Sons of Gwalia Ltd v Margaretic [2007] HCA 1 (Sons of Gwalia).

The High Court held, in effect, that a claim by a shareholder for loss to the value of shares caused by failure of the company to inform the market would rank equally with the claims of other unsecured creditors in an external administration. It was not a claim in the shareholder’s ‘capacity as a member of the company’, which would be postponed behind claims by unsecured creditors.
While recognising that the decision has significant implications, including for providers of corporate debt finance as well as the conduct of external administrations, CAMAC has not recommended action to overturn its effect.

The Committee was not persuaded of the need for change in the legal position. “Any move to curtail the rights of recourse of aggrieved shareholders where a company is financially distressed could be seen as undermining legislative initiatives to provide shareholders with direct rights of action in respect of corporate misconduct. “