The Corporations and Markets Advisory Committee (CAMAC) has released a discussion paper  Shareholder claims against insolvent companies: Implications of the Sons of Gwalia decision (pdf).

The paper responds to a request from the
Parliamentary Secretary to the Treasurer, the Hon. Chris Pearce, MP,
for CAMAC to consider the implications of the decision of the High
Court of Australia in Sons of Gwalia Ltd v Margaretic  [2007] HCA1.

In that case, the High Court held that a
shareholder who is misled by a company into acquiring its shares can
claim as a creditor in the external administration of the company. Such
a claim is not postponed behind other unsecured creditors as are claims
brought in a shareholder’s ‘capacity as a member of the company’. While
clarifying the interpretation of relevant statutory provisions, the
decision opens up underlying policy considerations, as was recognised
by members of the Court.

CAMAC has been asked to consider whether
the current position should be retained or changed to postpone claims
by shareholders as aggrieved investors, and whether other changes
should be made to ameliorate the consequences of either outcome.

The paper reviews various arguments for
or against change to the current legal position and notes the
divergence between the US and UK positions. It canvasses possible
changes to the conduct of creditors’ meetings and to the procedure for
determining shareholder claims if the current position is retained. It
raises the possibility of introducing a ‘fraud on the market’ principle
to assist shareholder claims should the law be changed. Finally, the
paper considers whether shareholders whose claims are postponed in a
liquidation should still be treated as creditors, with voting and other
rights in an external administration.

Submissions close on Friday 21 December 2007.