On 19 January 2010 the Government’s Corporate Insolvency Law Reform Package was announced bringing with it sweeping reforms to Australia’s Corporate Insolvency Laws. Arguably the most significant consequence of these reforms is the reversal of the High Court decision in Sons of Gwalia v Magaretic  HCA 1 (Gwalia).
The High Court in Gwalia held, amongst other things, that a shareholder’s claim in a winding up was not inferior to the claims of the company’s creditors. In his media release, Minister for Financial Services, Superannuation and Corporate Law, the Honourable Chris Bowen stated ‘any direct benefits to aggrieved shareholders arising from non-subordination are outweighed by the negative impacts to shareholders generally as a result of restrictions on access to, and increases in, the cost of debt financing for companies.’
The Minister also commented that the potential uncertainty and costs of external administration as well as Gwalia’s potentially negative impact upon business rescue procedures were significant considerations which prompted the announcement of these reforms.
In addition to reducing the costs and complexity of large scale insolvencies, it is expected that these proposed reforms will limit the concern of banks with respect to the provision of unsecured debt exposures. The reversal may also encourage the reduction of lending costs, and insolvency administration costs.
In addition to the reversal of the Gwalia decision the Government also intends to implement, amongst other things, the following reforms:
- facilitate the electronic provision of creditor lists to creditors and align the relevant provisions for most kinds of corporate insolvency administration;
- mandate the requirement to notify creditors of material breaches of Deeds of Company Arrangement;
- streamline the approval of provisional liquidator remuneration and the appointment of replacement external administrators in the event of a vacancy; and
- reduce the regulatory burden upon insolvency administrations in relation to the provision of notices to creditors.
If you have any queries in relation to this matter or any other insolvency matters, please do not hesitate to contact Alison Robertson on (08) 9288 6872 or Lital Hymans on (08) 9288 6732.