19/01/2010 - 10:14

IMF reassures investors over Gwalia move

19/01/2010 - 10:14

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Litigation funder IMF (Australia) says a federal government decision to overturn a High Court ruling on the Sons of Gwalia case will not affect past and present proceedings.

IMF reassures investors over Gwalia move

Litigation funder IMF (Australia) says a federal government decision to overturn a High Court ruling on the Sons of Gwalia case will not affect past and present proceedings.

The move to reassure investors comes as the company's share price dropped as much as 16 per cent to a low of $1.63, before rising slightly to $1.66 at 12:51 AEDT.

Today the government announced it will legislate to amend the Corporations Act to reverse the ruling of the Sons of Gwalia v Margaretic case, which, in certain claims, ranked some shareholders on an equal basis with unsecured creditors.

Prior to the ruling, shareholders of a collapsed company were the last to receive funds, which would have been paid to secured and unsecured creditors and employees first.

IMF had represented shareholders in Sons of Gwalia in a litigation case, where claims totalled about $260 million.

Today IMF said that the number of companies likely to have come under the High Court ruling in the future is minimal because the companies needed to have assets with large value and to have issued little or no security to their creditors.

"The number of companies fitting this description is likely to have fallen since the High Court ruling," IMF said in a statement.

"Except in the unlikely circumstance that the government introduces retrospective legislation, none of the companies current cases will be affected.

"[IMF] has currently agreed to fund three shareholder actions against insolvent companies, in one of which litigation has been issued.

"In circumstances where an insolvent company has insurance against causing damage by non-disclosure it is the current law that the benefit of that insurance flows solely to the persons suffering that damage.

"Unless the government also reverses this long held principle of corporate law those cases will continue to be available for funding."

In 2005, Sons of Gwalia colllapsed under the weight of its own hedge book, owing about $800 million.

The High Court ruling that found in favour Brisbane man Luka Margaretic, who had invested $26,288 in Sons of Gwalia, was last year upheld by the federal government's Corporations and Markets Advisory Committee.

Today, federal Corporate Law Minister Chris Bowen said the High Court ruling undermined the distinction between debt and equity.

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