Victorian Registry, Federal Court of Australia (VID634/2010)
ION Limited, an Australian automotive components manufacturer, went into administration in December 2004 leaving debts in excess of $700 million.
Proofs of Debt were filed by Slater and Gordon (funded by IMF) on behalf of investors who purchased shares between October 20, 2003, and 7 December 2004. They alleged that material information concerning the company’s real financial position was withheld.
The claims relied upon the Sons of Gwalia decision, which arose in the context of a legal claim brought by shareholders alleging that the company had engaged in misleading conduct and had failed to comply with its obligations of continuous disclosure under the Corporations Act. Section 563A of the Act operates to defer the recovery of debts owed to “members in their capacity as members” to follow the payment of unsecured creditors.
Chief Justice Murray Gleeson said that there was no general principle that “members come last” in an insolvency. Instead, he said that the Act requires, “a line to be drawn between a shareholder claiming in the capacity of a member and a shareholder claiming otherwise than in the capacity of a member…To draw that line it is necessary to analyse the nature of the claim; it is not sufficient to describe its effect on other creditors”.
The Corporations Act provides a right to compensation for people who suffer loss as a result of a company engaging in misleading conduct, or failing to comply with the continuous disclosure obligations contained in the ASX Listing Rules. The High Court found that the legal claims of shareholders alleging breaches of these provisions were not debts owed to those members in that capacity. Accordingly, the shareholders claims were admitted in the liquidation of ION, ranking equally with the other creditors.