Bernie Ripoll (Oxley, Australian Labor Party) Share this | Hansard source

It is a pleasure to be able to speak on the Corporations Amendment (Sons of Gwalia) Bill 2010 and it is good to hear that not only has this bill gone through a Senate committee process, where a number of technical amendments have been made and accepted by government, but the opposition also supports what this bill does. In effect this bill reverses the High Court decision in the Sons of Gwalia v Margaretic case. The main effect of the bill is that all claims in relation to the buying, selling, holding or otherwise dealing with shares are to be ranked equally and after all other creditors’ claims. The bill is widely supported, obviously, within the parliament but also outside the parliament from a range of significant stakeholders. It is important that we get this right, and it is important that we have a consistent approach to the liabilities and risks that shareholders take and to who sits in the line of those to be paid in the event of a collapse of a particular company.

The bill contains three key measures. It provides that all claims in relation to the buying, selling, holding or otherwise dealing with shares are to be ranked equally and after all other creditors’ claims. It also removes the right of persons bringing claims regarding shareholdings to vote as creditors in a voluntary administration or a winding-up unless they receive permission from the court. They will also not be entitled to receive reports to creditors unless they make a request in writing to the external administrator. It eliminates the restriction on the capacity of a shareholder to recover damages against a company based on how they acquired those shares or whether they still hold those shares.

In comparing the current law with the proposed new law all claims against an insolvent company arising from buying, selling, holding or otherwise dealing with a shareholder are to rank equally and to be postponed until all other claims are paid. That is an important principle ensuring the availability of credit and the proper assignment of risk. The current law in accordance with the Sons of Gwalia v Margaretic case states that some shareholder claims, for example compensation claims, would not be postponed by section 563A of the Corporations Act. Instead they would rank equally with unsecured creditors in any distribution to creditors after secured credits and payments to priority creditors. The proposed new law will ensure that persons bringing subordinated claims would not be able to receive communications to creditors from an external administrator without making that request in writing nor would they be able to vote in an external administration without the leave of the court.

The current law also means that persons bringing subordinated claims are treated as creditors themselves and are entitled to receive communications to creditors from external administrators. This is obviously a complex set of arrangements and currently is done without making a written request. The proposed new law places a restriction on the ability of a shareholder to recover damages against a company based on how they acquired the shares or whether they still hold the shares. The current law also states that a person’s capacity to bring a claim for damages could be affected by how they acquired the shares and whether they still hold them. This was particularly the case in the High Court ruling.

What this bill ultimately does is benefit both creditors and shareholders because it reduces higher financing costs. It also helps facilitate the provision of credit to companies in an efficient way for the economic development of the nation. If credit is more available it will also increase the chances of a company actually staying in existence in the first place. It also reduces the risk premiums charged to the extent of onerous terms and conditions placed on companies by credit providers.

The bill reduces the costs and complexity for insolvency practitioners to carry out external administrations and a range of other cost savings which are passed onto creditors. The bill improves the efficacy of external administration in terms of both the reallocation of capital to productive uses and the promotion of business rehabilitation. When shareholders invest in a company in the hope of sharing in the company’s future profits, they do this knowing that there is a risk, and they share in that risk in a particular manner.

Creditors do not get the chance to share in these profits. They provide a good or a service and invoice the company for payment on that basis. It is a different relationship and a different set of risk terms that are applied and it should be clear in the line of risk who takes what risk at what point and how that ought to be administered. Shareholders who have been misled should have the right to recover some of their losses but not to the detriment of creditors.

This is a good bill and is supported by the parliament and I commend it to the House.

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