Shareholders vs banks: Sons of Gwalia case sparks inquiry
Policy and law makers need to think carefully before bringing in any radical changes to corporations law in response to the High Court decision in the Sons of Gwalia case, says Minter Ellison corporations lawyer Nick Anson.
The decision followed the test case brought before the court by a shareholder, Luka Margaretic, to try to have his claims for compensation due to misleading information put ahead of creditors.
Anson warns that If there is no change to the law created by the case — that s563A of the corporations law does not require claims for damages by shareholders to be subordinated or deferred below claims of creditors — ASX-listed companies may shun shares in favour of options and convertible notes.
In response the High Court decision, the Parliamentary Secretary to the Treasurer, Chris Pearce has asked the Corporations and Markets Advisory Committee to look into:
- Should misled shareholders be able to participate in an insolvency proceeding as an unsecured creditor?
- If so, what needs to change to make the process efficient?
- If not, how could misled shareholders be better protected?
The Australian Bankers’ Association welcomed the announcement, warning that the Sons of Gwalia decision has increased risk for lenders and could lead to:
- Reduced loans.
- Declined loans.
- Increase the credit margin with a risk weighting.
- Insist on security.
- Increase intensity of monitoring management.
Minter Ellison’s Anton says in Britain, shareholders are not subordinated to creditors in the case of insolvency — as now seems to be the case in Australia — and there has not been an increase in the cost of credit there, as the banks have warned is likely to happen here as a result of the Sons of Gwalia decision. Some commentators believe Australia may be different because of the widespread availability of litigation funding.
In the US, all investors, including holders of shares, bonds, promissory notes or options, are subordinate to creditors. If Australia adopted something a system like this, banks would lose their claims under derivatives and options as well.
The Sons of Gwalia case decision is limited to shares it remains to be seen whether other forms of equity will follow.
— Jacqui Walker
Calls for recruitment help grow louder
Recruitment concerns are reaching a critical level with news this morning that the jobless rate has fallen to the lowest level in 32 years.
Not only is the jobless rate at 4.5% but short-term solutions, such as bringing in foreign workers from overseas, are being stymied by long waiting lists.
Processing time for manually lodged applications have jumped from an average of four weeks to at least three months, says the Migration Institute of Australia.
The head of COSBOA, Tony Steven, says the skills shortage has now become very urgent. He says there are solutions in train such as technical schools and increased training, but they are all long-term projects.
Michael Schaper, head of the school of business at Bond University, says the low jobless rate and skills shortage makes it far harder for smaller companies to be competitive in the marketplace. More immediate short-term solutions must be found, such as making sure information to help smaller firms recruit flows freely. “For example the CES (now CentreLink) used to be free. More help to assist companies to advertise would be good.”
He says smaller companies are also penalised because benchmark pay rates and conditions are no longer freely available. “Now under WorkChoices, it is very hard for smaller companies to find information on pay rates and conditions. The Commonwealth could publish those things for free.”
He also suggests more one-on-one assistance for smaller business. “The Employment Workplace relations offices are talking to people about AWAs. But they are the end of the pipeline. Why couldn’t they provide assistance to smaller firms about recruitment as well?”
Mike O’Neil, chief executive of The Executive Connection, says 60% of members expect to grow their workforce and their main concern is retention of staff and changing their recruitment policies. “Instead of getting 20 to 30 applicants for jobs, you just get two or three. People are being forced to introduce different strategies and approaches to recruitment.
— Amanda Gome
Manufacturers be warned
Recent competition law changes mean a $3.4 million penalty ordered against cosmetics manufacturer Jurlique for resale price maintenance could be “small beer,” a leading trade practices lawyer says. Founder Dr Jurgen Klein, who sold his interest and left Jurlique’s board in 2005, was also fined.
The Federal Court found that Jurlique had threatened not to supply retailers unless they sold its products at high prices.
TressCox Lawyers partner Alistair Little says amendments introduced in January to the Trade Practices Act mean courts can now award “massive” penalties, dwarfing the $3.4 million that Jurlique must pay.
The amendments mean companies who breach the Trade Practices Act can be penalised:
- An amount equal to three times the benefit wrongfully obtained by the company, or
- 10% of the annual turnover of the company or $10 million per offence.
Little says that penalities for resale price maintenance are usually at the top end of the range. And the “spectacularly anti-competitive” nature of the conduct means the ACCC is “very vigilant” in monitoring manufacturer conduct, he says.
Businesses that can show a “culture of compliance” with the Trade Practices Act were less likely to fall foul of the law and would probably be less exposed to massive penalties if there was a breach, he says.
— Mike Preston
Economic round-up
Exporters are nervously watching the steady rise of the Aussie dollar of recent weeks. The dollar nudged up to a two-week high US78.15 cents at close yesterday, and was still high at US78.14 cents at midday today. Yesterday’s drop in unemployment and strong commodities prices are pushing up the dollar, economists say.
Petrol prices may soon be on the rise again after a combination of increased demand and fire damage to a major US producer’s oil field drove crude oil prices up to almost $60 per barrel.
Seasonally adjusted housing finance approvals in December last year rose 1.9%, according to figures released by the Australian Bureau of Statistics Friday 9 February. A 4% increase in investment borrowing drove the increase, while owner occupier approvals lifted by a more modest 1.1%.
