Shares of corporate litigation funder, IMF (Australia) Ltd were driven down by nearly 15% yesterday in the wake of the decision by the federal government to reverse the so-called Sons of Gwalia High Court decision and remove the right of shareholders to greater priority in corporate collapses.
As the story below explains, the move by the federal government is contained in proposed reforms to the country’s corporate insolvency laws.
IMF has funded a number of high profile cases since the Sons of Gwalia case.
Now investors see a danger of that income stream drying up.
That High Court decision three years ago ranked shareholders of miner Sons of Gwalia equally with unsecured creditors in corporate collapses.
That reversed years of accepted practice where debtors ranked ahead of shareholders when companies collapsed and distributions were made from the proceeds of asset sales.
That generally meant shareholders lost all or some of their investments, or faced long delays in getting any returns.
Now after extensive moaning and groaning from big business, the government will reverse the High Court ruling in its proposed insolvency law reform.
News of the move was in the morning business media and was quickly followed by a statement from Corporate Law Minister Chris Bowen confirming the changes.
That saw IMF shares lose almost 15.5% of their value in a few minutes of trading.
They slumped 30 cents to $1.63, before recovering slightly to end down 14.9% at $1.70.
Investors were not mollified by IMF’s statement that attempted to suggest the company’s business would not be all that impacted.
"As the Company has stated on earlier occasions, the number of companies likely to have come under the High Court ruling in the future is minimal because such companies would need to have assets with large value and to have issued no or little security to their creditors.
"The number of companies fitting this description is likely to have fallen since the High Court ruling.
"Except in the unlikely circumstance that the Government introduces retrospective legislation, none of the Companies current cases will be affected.
"The Company 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," the company said.
