Creditors Vs Misled Shareholders: Finding The Right Balance

Introduction

The Federal Government’s Corporations and Markets Advisory Committee (CAMAC) recently released a discussion paper suggesting potential reforms to the Corporations Act 2001 (Cth) (Corporations Act) under which shareholders claiming that they have been misled by a company will no longer need to establish that they relied on misleading or deceptive information when purchasing shares.

The reforms are suggested as a means of strengthening the rights of shareholders who claim to have been misled if the controversial High Court decision in Sons of Gwalia Ltd v Margaretic (Sons of Gwalia) handed down in January of this year is reversed. In that case, the court held by a 6 to 1 majority that shareholders who establish a right to claim damages against an insolvent company for misleading and deceptive conduct or failing to disclose material information are to be ranked equally with other unsecured creditors in the administration of the company’s assets.