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High Court's 2007 Sons of Gwalia ruling is overturned


THE federal government has passed a bill overturning the effect of a High Court ruling in 2007.

The ruling had given extra rights to ordinary shareholders in failed companies such as gold miner Sons of Gwalia.

The passage of the Corporations Amendment (Sons of Gwalia) Bill of 2010 through both houses means that ordinary shareholders are back where they were before January 2007, a very long way down the creditors' queue, but liquidators will have a much simpler time winding companies up and the cost of borrowing by companies may be reduced thanks to the extra certainty.

The High Court case was triggered by Sons of Gwalia shareholder Luca Margaretic's test case for compensation over the collapse of the West Australian goldminer in 2004.

Critically, the court found that Mr Margaretic and other claimants had been misled by management statements about the company's financial health, and thus deserved to rank alongside secured creditors.



In January this year, Financial Services Minister Chris Bowen said the government would change the law to prevent a recurrence of such an outcome.

Among concerns raised were that litigation funders would hold up liquidations by running class actions, and that overseas money would be reluctant to invest in Australia.

A number of shareholder groups have been critical of the new move, but Sons of Gwalia liquidators had to entertain 8800 claims by small investors of misleading and deceptive conduct by the company and the final distribution to creditors of 22c in the dollar was not made until July 2008, almost four years after the miner had collapsed.