Implications of the Sons of Gwalia Decision

Journal of Law and Financial Management, Vol. 7, No. 1, pp. 8-17, June 2008

13 Pages Posted: 12 Dec 2009

See all articles by Cary Di Lernia

Cary Di Lernia

affiliation not provided to SSRN

Date Written: June 1, 2008


The question as to whether aggrieved shareholders should rank equally with creditors in cases of insolvency involving illegal or misleading conduct sits at the crossroads of both insolvency and securities law. Important questions arise at this juncture concerning the fairness, certainty, transparency and efficiency of the treatment of such claims when in competition with creditor claims. In Sons of Gwalia Ltd (admin apptd) v Margaretic [2007] HCA 1 the High Court allowed shareholders to rank equally with unsecured creditors in insolvency cases involving illegal or misleading behaviour, flying in the face of traditional perceptions of the distinction between debt and equity, and the primacy historically accorded to creditors upon insolvency. Whether the resulting legal position is a good fit with the Australian insolvency regime and general law is the subject of a current Corporations and Markets Advisory Committee review. This paper is concerned to illuminate the development of legal thought and precedent in this technical area before focussing on the judgments delivered by the High Court in Sons of Gwalia. The paper advocates legislative change via the abrogation of precedential authority preventing parity ranking of aggrieved shareholder claims to solidify the resulting legal order post Gwalia.

Keywords: Aggrieved shareholder claims, insolvency, Sons of Gwalia, Houldsworth

JEL Classification: M40, M41, G11

Suggested Citation

Di Lernia, Cary, Implications of the Sons of Gwalia Decision (June 1, 2008). Journal of Law and Financial Management, Vol. 7, No. 1, pp. 8-17, June 2008, Available at SSRN:

Cary Di Lernia (Contact Author)

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