Sons of Gwalia Ltd v Margaretic: the shifting balance of shareholders' interests in insolvency-evolution or revolution?

Publisher:
Melbourne University Law Review Association
Publication Type:
Journal article
Citation:
Hargovan Anil and Harris Jason 2007, 'Sons of Gwalia Ltd v Margaretic: the shifting balance of shareholders' interests in insolvency-evolution or revolution?', Melbourne University Law Review Association, vol. 31, no. 2, pp. 591-621.
Issue Date:
2007
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In Sons of Gwalia, the High Court of Australia found that shareholders who had been allegedly induced into purchasing shares in a company shortly prior to its insolvency by misrepresentations and inadequate market disclosure were able to lodge claims as creditors in the company’s voluntary administration. The High Court interpreted the statutory subordination provisions in the Corporations Act 2001 (Cth) narrowly, with the result that many shareholders will be permitted to stand alongside non-shareholder creditors (as contingent creditors) in corporate insolvencies. Whilst this has the effect of diluting the returns to unsecured creditors, it also reinforces the importance of corporate disclosure and other consumer protection laws by providing misled shareholders with a remedy during the company’s insolvency. This case note discusses the High Court’s decision and comments on where the ruling fits into the broader corporate insolvency landscape. The case note then looks to the future to comment on where the law of shareholder subordination may be headed.
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