THE RELIANCE INTEREST OF CREDITORS.

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. This paper considers the case for the subordination of aggrieved shareholder claims centering on the reliance interest of creditors. [ABSTRACT FROM AUTHOR]