Shareholders may now count as creditors

Deceived shareholders now have a chance to get their money back.

The High Court this morning gave people deceived into investing in precarious companies a better place in the queue for any leftovers.

The much-anticipated Sons of Gwalia decision has reversed the long-standing rule that misled shareholders are not entitled to treatment equal with that of creditors when companies are wound up.

Debts had to be paid to everyone else owed money before duped investors could claim compensation from the remaining assets.

The High Court, by a 6-1 majority, has changed that today.

The court decided that:

The disclosure requirements have been adopted by the Parliament for the protection of persons other than members of the company – including the investing public more generally. The requirements are of concern to corporate regulators, media, industry and university observers, macro-economists and bankers as well as employees and the general public having an interest in corporate disclosures. At the time of the alleged non-disclosures, the respondent was not a member of the company at all. In this sense, the disclosures were not then received in that capacity but as a consumer of corporate information and as an investor.

The full judgment is available here

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