Sons of Gwalia Ltd v Margaretic [2007] HCA 1

ON 31 JANUARY 2007, the High Court of Australia delivered Sons of Gwalia Ltd v Margaretic [2007] HCA 1; (2007) 232 ALR 232; (2007) 81 ALJR 525 (31 January 2007).

Section 563A of the Corporations Act 2001 (Cth) provided:

“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 postponed until all debts owed to, or claims made by, persons otherwise than as members of the company have been satisfied.”

The High Court held that s563A of the Corporations Act 2001 (Cth) did not apply to shareholders making a claim for damages for losses suffered as a result of the company’s wrongdoing when acquiring the shares as such claims are not owed to the shareholder in their capacity as a member of the company. Accordingly, a claim by Mr Margaretic for losses arising from being misled in the acquisition of his shares before the company went into administration were to be treated as debts under s553 of the Act and ranked equally with the claims of other creditors.

Parliament has since amended the Corporations Act 2001 (Cth) by the passage of the Corporations (Sons of Gwalia) Act 2010. In general terms, the effect of the amendment is that (1) share ownership does not preclude a claim against the insolvent company but payment shareholder claims relating to share dealings is to be postponed until the payment of all other debts and (2) a person whose claim has been postponed is entitled to receive documents relating to the insolvency and in some cases, with the permission of the court, vote at meetings regarding the conduct of the administration.


1300 00 2088