In the highly publicised decision, the High Court ranked shareholder claims against a company for misleading conduct equally with claims by unsecured creditors in an external administration. Following significant debate on the merits of the decision, the Government commissioned an independent review by the Corporations and Markets Advisory Committee (CAMAC).

CAMAC canvassed a number of competing issues in its December 2008 report, such as the need to protect the equity markets with robust continuous disclosure laws and the negative impact the decision may have on the availability of unsecured finance to companies facing financial stress. CAMAC ultimately supported the Sons of Gwalia decision on the basis that it promoted investor confidence in the sharemarket.

The proposed amendments should reduce complexity in corporate restructures and insolvency administrations. By providing greater certainty regarding the position of unsecured creditors, the proposed amendments may also assist in opening up unsecured corporate debt markets, particularly in overseas corporate bond markets.

Following the proposed amendments, shareholders may still have recourse against companies for breaches of disclosure laws in a number of ways without their claims being subordinated. As the scope of Sons of Gwalia was confined to the context of an insolvent company, shareholders may still take action against solvent companies for misleading conduct without their claims being postponed to those of other unsecured creditors. Solvent or not, shareholders of a company may also still pursue actions against directors for breaches of disclosure laws.

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