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
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  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: Suggested Citation