Faith/less? Market integrity and the enforcement of Australia’s continuous disclosure provisions

The very idea of ‘continuous disclosure’ and all it carries with it – corporate transparency, equal access to information, a level playing field amongst market participants for trade in an entity’s securities – is of serious value to the effective and efficient functioning of the Australian market for capital. The extent to which the structures supporting faith in this ideal are actually effecting it in reality is therefore an important issue for consideration. To what extent then do enforcement efforts surrounding the regime justify any faith placed in the integrity of the market by lay investors? Put differently, should investors feel confident that the immediate release of material information relevant to their trading decisions is well policed, with the effect that there are likely to be few deviations from this ideal standard, and that the market can be trusted to provide information necessary to maintain a level playing field? An important question on par with this preliminary is whether there is anything that might be learnt from enforcement activity of various kinds to improve the type of corporate reporting which has been subjected to it. Inquiry into these questions will serve to temper corporate and investor expectations as to just what the practical requirements and limits of a system of continuous disclosure might be. The purpose of this dissertation is to offer a deeper understanding of the enforcement of Australia’s continuous disclosure regime, from high profile court cases and the imposition of administrative sanctions to ‘everyday’ enforcement activity through ASX price queries and aware letters, and offer an analysis of what might be learnt from them with a view to improving the daily function of continuous disclosure in Australian markets. Such an understanding might at the very least ensure the development of a realistic set of expectations around this interesting, if unusual, set of rules

Should the rule in Houldsworth’s case be abrogated by statute?

At the crossroads of insolvency and securities law lies the question as to whether defrauded shareholders should rank equally with unsecured creditors in cases involving fraudulent or misleading behaviour. Important questions arise at this juncture concerning the efficiency, certainty, transparency and fairness of the treatment of such claims in insolvency situations. In Sons of Gwalia Ltd (admin apptd) v Margaretic [2007] HCA 1, the High Court chose not to apply a rule said to be germane to insolvency cases involving fraudulent or misleading conduct inducing share purchase known as the rule in Houldsworth’s Case. The “rule” said to have been developed in Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317 had up until the High Court’s decision been used to interpret legislative provisions concerning shareholder claims, resulting in problematic determinations in the context of modern developed markets. While it is submitted the High Court was justified in choosing not to apply the rule in Houldsworth’s Case and thus allowing shareholders to claim as unsecured creditors, the rule may still prove good law in certain cases. Indeed, the referral of the High Court’s decision to the Corporations and Markets Advisory Committee for review may result in legislative change which reverts to the traditional treatment of shareholders in such circumstances. Accordingly this dissertation engages in a doctrinal analysis of historical precedent on defrauded shareholder claims in the UK and Australia to demonstrate that the decision in Houldsworth and subsequent interpretation and application of the “rule” therein suffer from deep flaws, and have been productive of relative injustice. It is argued that it is necessary to put the current uncertainty surrounding the applicability of Houldsworth in Australia beyond doubt through legislative abrogation of the rule in Houldsworth’s Case. As the result of such abrogation would represent a significant policy shift in Australian corporate law, the merits and difficulties of the resulting position will be addressed by this dissertation. It will be argued that a policy of shareholder parity with unsecured creditors best meets the goals of insolvency and securities law regimes while contributing to the sustainability of a fair and efficient market, and investor participation in it