A joint survey conducted by Chartered Secretaries Australia (CSA) and boutique commercial law firm Turks Legal found that 65 per cent of respondents believed the decision would have a negative impact on Australian business and investment. Tim Sheehy, CSA’s chief executive, noted that only 28 per cent see Sons of Gwalia as having a positive impact.

Clayton Utz partner David Cowling believes the survey and its respondents are simply re-stating the obvious. “I and others have been expressing the same view in public for many months. While it’s pleasing to learn that I’m not a voice crying in the wilderness, the CSA survey doesn’t take the debate any further in substantive terms — this is a policy issue, not a popular vote,” he said.

The decision, handed down in early-2007, signifies a clash between fundamental economic and legal principles of Corporations Law. Freehills acted as deed administrators of the Sons of Gwalia group. Freehills litigation partner, Katrina Banks-Smith, explained the impact of the decision to Lawyers Weekly.

“The impact of the High Court’s decision is heightened where the insolvent company is listed or has a large number of shareholders, each with a potential claim,” she said.

“Traditionally, the administrator or liquidator did not deal with shareholders’ claims in any detail as they were generally assumed to be postponed to ordinary creditors of the company. Now it is clear that shareholder claims rank equally, and so the administrator must look carefully at each element of each shareholder’s claim.”

Pieter Oomens, TurksLegal’s head of commercial disputes and insolvency group, said: “Sons of Gwalia has seen Australia’s highest court grant clear rights and protections to shareholders. Legal rights should not be overturned without careful consideration, but here, the issue is whether economic considerations outweigh those rights.”

The Corporations and Markets Advisory Committee (CAMAC) has announced that it will review the Sons of Gwalia decision with a view to determining whether a legislative response is warranted.

Three main bodies of opinion have emerged in the submissions made to CAMAC, according to Oomens: “One is to have no change, and simply leave the law as it stands with Sons of Gwalia. The other is to amend it, so as to reverse the effect of the decision,” she said.

“And a third option that’s canvassed in the report is that there be a partial reversal of the decision, but that there be a subcategory of aggrieved investor claims.”

Sheehy defended the integrity of the CSA-TurksLegal survey. “We regularly survey a group of participating members so we do what we call these rapid-response surveys to members who have previously agreed to participate in the program. So it’s not to all 8,000 members, and it’s to members who have pivotal roles in the larger-listed companies,” he said.

“We use them to take a little bit of a temperature on what people think, and then we often use [them], if we can synthesise a thread … to assist us in our submissions.”

The organisers of the survey have divergent personal opinions about their preferred outcome.

“We know that in our survey there were discussions of it being partially reversed and we gave some of those options to our members, but our own view is for a completely reversal,” Sheehy said. (See his expanded comments in the opinion section on page 13 of this issue.)

Oomens, who practises insolvency law, would like to see the creation of a special subcategory of shareholders in aggrieved investor claims. “So that after creditors have been dealt with, if there happens to be some excess for distribution to shareholders, those who have been aggrieved as a result of perhaps misleading conduct on the part of the company will stand in priority to others,” he said.

“I think I’m right when I say that the Law Council of Australia, the Insolvency and Reconstruction Committee, has favoured that third option. And personally it’s the one that finds favour with me,” Oomens said.

Cowling doesn’t see either outcome as likely. “In the wake of collapses like Westpoint, I would be surprised if any government was willingly going to tell mum and dad shareholder/investors that it was about to strip away protections which the High Court had just given them,” he said.

“What is really needed, therefore, is more sustained effort in support of CAMAC’s attempts to find a mutually acceptable solution.”