Federal Government Moves on the Sons of Gwalia High Court Decision

Despite the recommendations of the Corporations and Markets Advisory Committee handed down in its Report of December 2008, the Federal Government has moved to reverse the decision of the High Court of Australia in Sons of Gwalia v Margaretic [2007] HCA 1.

The Federal Government has released an exposure draft of the Corporations Amendment (No 2) Bill 2010, the purpose of which is set out in the explanatory memorandum, as follows:

• It provides that all claims in relation to the buying, selling, holding or otherwise dealing with shares are to be ranked equally and after all other creditors' claims [emphasis added].
  
   The proposed new section 563A Corporations Act 2001 will read:
  
  " (1) the payment of a subordinate claim made against a company is to be postponed until all other claims made against the company are satisfied.
  (2) In this section, subordinate claim means:
  (a) a claim for a debt owed by the company to a person in the person's capacity as a member of the company (whether by way of dividends, profits or otherwise); or
  (b)any other claim that arises from a person buying, selling or otherwise dealing in shares in the company."
• It removes the right of persons bringing claims regarding shareholdings to vote as creditors in a voluntary administration or winding up unless they receive permission from the court. They will also not be entitled to receive reports to creditors unless they make a request in writing to the external administrator.
• It eliminates any restriction on the capacity of a shareholder to recover damages against a company based on how they acquired the shares or whether they still hold the shares (thereby abrogating the decision of the House of Lords in Houldsworth v City of Glasgow Bank).

The proposed Act will commence on the day after it receives Royal Assent. It will not have a retrospective effect.

The Federal Government has invited comments on the Bill before finalising its terms.