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The ramifications of the High Court's decision in Sons of Gwalia Limited vs. Margaretic [2007] HCA 1 has prompted the Federal Government's Corporations and Markets Advisory Committee (CAMAC) to review if reform is needed in insolvency law. The High Court upheld an earlier ruling that shareholders who have a damages claim against an insolvent company for misleading and deceptive conduct, can now prove in the liquidation of the company and will rank equally alongside other unsecured creditors and before other shareholders. The decision revolved around the Court's interpretation of s.563A of the Corporations Act 2001 (Cth) and overturns the insolvency principle that 'shareholders come last'. This will complicate and increase costs for the liquidations of listed companies. Insolvency administrations will need to decide whether shareholders should be included in notifications to creditors of meetings, must carefully scrutinise each damages claim brought by a shareholder and will face difficulties in estimating the value of any claim. Another concern is that the decision will increase risks for unsecured creditors, adversely affecting fundraising capacities for Australian companies particularly into bond markets – which has been the experience in the United Kingdom. This decision also means companies must ensure adequate disclosure to shareholders - particularly financial information that entices shareholders to inject capital into the company The CAMAC is investigating:
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