CHAPTER 2

OVERVIEW OF THE BILL

Key provisions of the Bill

2.1        The key provisions of the Bill amend the Corporations Act.

2.2        Item 1 of Schedule 1 of the Bill inserts Part 2F.4 'Proceedings against a company by members and others' and proposed new section 247E. Proposed new section 247E provides that a person is not prevented from obtaining damages or other compensation from a company only because the person:

(a) holds, or has held, shares in the company; or

(b) has subscribed for shares in the company; or

(c) has a right to be included in the register that the company maintains under section 169.[1]

2.3        This proposed section abrogates the rule in the decision of the House of Lords in Houldsworth v City of Glasgow Bank which established that a person's capacity to bring a claim can be affected by how the person acquired the shares and whether the person still holds them.[2]

2.4        Item 2 of Schedule 1 repeals the existing section 563A and substitutes proposed new section 563A. Proposed subsection 563A(1) provides that the payment of a 'subordinate claim' made against a company is to be postponed until all other claims made against the company are satisfied.

2.5        Proposed subsection 563(2) outlines that in this section the term 'subordinate claim' means (a) a claim for a debt owed by the company to a person in the person's capacity as a member of the company; or (b) any other claim that arises from dealing in shares in the company. This has the effect that any claim brought by a person against a company that arose from the buying, selling, holding or otherwise dealing with a shareholding is to be postponed in an external administration until after all other claims have been paid.[3]

2.6        Item 3 of Schedule 1 inserts proposed section 600H which outlines the entitlements of a person whose claim against a company is postponed under proposed new section 563A. These are: (a) to receive a copy of any notice, report or statement to creditors only if the person asks the administrator or liquidator in writing; and (b) to vote in their capacity as a creditor of the company, during the external administration of the company, only if the court so orders.

2.7        Item 4 of Schedule 1 provides that: (1) section 563A, as amended by the Schedule, applies to a claim that arises after this Schedule commences; and (2) section 600H, as inserted by the Schedule, applies to any claim made against a company if the external administration of the company commences after the Schedule commences (being the day after Royal Assent).

2.8        The EM notes that the Bill has no significant financial impact on Commonwealth expenditure or revenue and describes the Bill as having a low compliance cost impact. In terms of regulatory impact on business, the EM states that the amendments in the Bill will facilitate the provision of credit to companies, reduce the costs for insolvency practitioners and improve the efficacy of external administration.[4]

Navigation: Previous Page | Contents | Next Page