Law

The facts and issues:

Sons of the Gwalia Ltd was a gold mining company listed on the Australian Stock Exchange (ASX). The plaintiff shareholder purchased shares in the company on the ASX. Shortly thereafter, the company went into voluntary administration and the value of the shares held by the shareholders was reduced to nil. The company subsequently executed a deed of company arrangement arising from the voluntary administration that provided for distribution from the company’s assets to take place in the same order of priority as would apply if the company were being wound up. The relevant cause in that deed expressly incorporated s 563A, to rank payments to shareholders in their capacity as members behind of all other corporate debts and claims against the company.

The shareholder commenced an action against the company, claiming that at the time of his share purchase the company was in breach of the continuous disclosure requirements, in that the company had failed to notify the ASX that it’s gold reserve were insufficient to meet its gold delivery contracts and therefore it could not continue as going concern. Alternatively, the shareholders claimed that, in consequence of the non-disclosure, he was a victim of misleading of deceptive conduct by the company, involving breaches of s 52 o the Australian Securities and Investments Commission Act 2001.

The shareholder claimed to be entitled to compensation from the company for the difference between the purchase price of his shares and their value after the company went into voluntary administration, there were other shareholder with similar claims.

The shareholder lodged a proof of debt with the administrator. The issue for judicial determination was whether the shareholder should be admitted as an unsecured creditor under the deed of company arrangement, ranking equally with the other unsecured creditors, on the assumption that he had been induced to buy shares of the company as a result