Law
...position and returns of unsecured creditors of companies deemed to be insolvent. The decision, handed down by a High Court majority of six to one, (Callinan J. dissenting) has upturned the long-held opinion that returns to shareholders must be postponed behind that of the claims of creditors (Korda, M., 2007, p. 1).
The Sons of Gwalia case involved a shareholder, Mr Margaretic, who bought 20,000 shares in the company. Eleven days later, on 29 August, 2004, the company was placed into voluntary administration by its directors. The placement into voluntary administration was as a result of suspicions the company was insolvent, following the detection of serious losses in the amount of A$525 million. The losses were brought about by uncontrolled forward hedging contracts and put options, made speculating against decrements in the price of gold (Easton, 2006, p. 453).
Mr Margaretic brought a claim against the company for compensation. The grounds were that he was a victim of misleading and deceptive conduct by the company in relation to breaches of various statutory provisions relating to the company’s continuous disclosure requirements. Non-disclosure, under Section 674 of the Corporations Act 2001 (“the Act”) and ASX Listing Rule 3.1 requires that an entity, on becoming aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of its securities, is to immediately notify the ASX of that information (, viewed 7 April 2007).
The court found in favour of Mr Margaretic and ordered that his claim be placed alongside those of unsecured creditors of the company, after strict application of the Act negated Section 563A which states “Payment of a debt owed by a company to a person in the person’s capacity as a member of the company, whether by way of dividends, profits or otherwise, is to be...
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