As previously discussed here, a key development that has spurred the recent rise of securities class actions in Australia is the High Court’s 2007 decision in Sons of Gwalia v Margaretic. In that case, the court overturned the convention that shareholders rank behind creditors in an insolvency, and ruled that “a shareholder in a failed company had the same right as an unsecured creditor to pursue a claim against the company in cases where the shareholder had suffered loss as a result of misleading and deceptive conduct by the company.”
In response to the case, however, a campaign for the legislature to overrule the decision has commenced and is reportedly intensifying. The Australian reports that key institutions are starting to lobby for the change, and “some foreign banks are believed to be so hostile towards the decision that they have indicated they will now only lend in Australia on a secured basis.” Duncan Fairweather, executive director of lobbyist group the Australian Financial Markets Association, told The Weekend Australian that there was now a “markedly reduced appetite” for unsecured Australian corporate debt in the wake of the decision.
The Australian Bankers Association, mainly on behalf of domestic lenders including the Big Four, has also reportedly raised the subject of Sons of Gwalia with the legislature.