As reported previously, on 23 June 2010, the Senate referred the amending Bill to its Standing Committee on Legal and Constitutional Affairs. Although the Committee's work was interrupted by the August election, it has now handed down its report
No change to the thrust of the bill
While recognising the force of both sides of the debate, the Committee has supported the broad thrust of the Bill that shareholder claims should not rank equally with unsecured and trade creditors.
The Committee did receive several submissions, including from the Law Council and Insolvency Practitioners Association, concerning the drafting of the proposed amendments, most of which have now been accepted by Treasury.
Significant among these:
Consistent language
The amendments will refer to 'debts' as well as 'claims' to ensure consistency with other provisions of the Corporations Act.
Post liquidation interest (PLI)
The amendments should also deal expressly with the issue of statutory (i.e. post liquidation) interest and make clear that the PLI will rank for repayment ahead of the subordinated claims of shareholders.
Creditor schemes of arrangements
The amendments will need to address not only liquidation and voluntary administration, but also creditor schemes of arrangement under section 411. Under the proposed amendment, shareholders will not be able to vote at a creditors' meeting without the leave of the court. Since shareholders have been deprived of this right, there was a concern that they could not be bound by a section 411 scheme. While creditors' schemes have not been common place since the introduction of the voluntary administration process in 1993, its use in the Opes Prime and Lift Capital has renewed interest in the process. For example, a creditors' scheme will be a feature of the recently announced Alinta restructure. The Committee and Treasury have accepted the Law Council's submission ,which outlines that shareholder claims will remain subordinated in such a scheme, even if they have not been given leave to vote, or there has been no separate meeting of them, as a class.
No change to transitional provisions
The Committee and Treasury did not accept a submission that the amendments have a greater degree of retrospective effect and should apply to all administrations which commenced after they take effect, irrespective of when the shareholder claims arose. As noted in our briefing paper, the amendments will only apply to those shareholder claims, where the circumstances giving rise to those claims occurred before the amendments came into effect. This means that on the question of subordination, the previous law will continue to apply to all current administrations, and will apply to future administrations where the shareholders' claim arises because of matters that occurred prior to the changes coming into effect.