| Recent litigation following large investor losses arising from wrongful corporate conduct and subsequent corporate collapse have tested the boundaries of Australian insolvency law and exposed uncertainties in the legal treatment of competing shareholder and creditor claims under the Corporations Act 2001 (Cth). The recent landmark High Court decision in Sons of Gwalia v Margaretic [2007] HCA 1 has, in certain circumstances, elevated the status of shareholders,with claims for damages for defective disclosure practices, to that of ordinary creditors. The equal treatment of shareholder and creditor claims, in such circumstances, also has enormous implications for debt capital markets and insolvency practitioners, in Australia and, potentially, in countries in the Asia Pacific region that share laws similar to Australian corporate and insolvency law. The decision challenges the conventional wisdom that shareholders interests are deferred until after the creditors are paid in full. The paper examines the legal and policy tension arising from the Sons of Gwalia litigation for insolvency stakeholders. It offers an appraisal of current Australian insolvency law. The paper also offers a comparative perspective with reference to the potential influence of the Australian experience, on statutory debt subordination of shareholder claims, in Hong Kong and New Zealand. |