Sons of Gwalia Ltd v Margaretic

Sons of Gwalia Ltd v Margaretic - [2007] HCA 1 - HCA 2007 case summary — Zoe

[15]

Once it became accepted that a company formed under the applicable companies legislation is a corporate entity with a legal existence distinct from that of its members, it followed that the creditors of a company were not also creditors of the members either collectively or individually. That is an essential aspect of the difference between an ordinary trading company formed with limited liability, and a partnership.
There was another, more enduring, influence in company law, reflected in certain decisions said to apply to the present case. It concerns the law relating to the raising and maintenance of share capital. Companies Acts, in a variety of ways, have given effect to the principle, also established before Salomon v Salomon & Co Ltd, that the creditors of a company which is being wound up have a right to look to the paid-up capital as the fund out of which their debts are to be discharged[4]. Statutory manifestations of that principle have been modified over the years, and it may be doubted that it reflects the reality of modern commercial conditions, where assets and liabilities usually are more significant for creditors than paid-up capital. As Lord Browne-Wilkinson said in Soden v British & Commonwealth Holdings Plc[5], it is "wholly irrelevant" to the position of a member who has acquired fully paid shares on the market.
To return to s 563A, it assumes that a person's claim, constituting a debt, is admissible to proof against the company. The existence of a liability is the hypothesis upon which the section proceeds. It subordinates that claim if, but only if, the debt is owed to the person in the person's capacity as a member of the company.
The principal issue in these appeals is whether the (assumed) liability of the appellant in the first appeal ("the first appellant") to the first respondent in both matters, Mr Margaretic ("the respondent"), is a liability to him in his capacity as a member of that appellant. The appellant in the second appeal ("the second appellant") is a general creditor of the first appellant. Both appellants argued that the liability to the respondent is a liability to him in his capacity as a member of the first appellant. That issue was resolved adversely to the appellants by Emmett J at first instance in the Federal Court of Australia[6], and by the Full Court of the Federal Court (Finkelstein, Gyles and Jacobson JJ) on appeal[7]. Substantially the same issue, arising under a similar statutory provision, was resolved in the same way in the United Kingdom by Robert Walker J[8], the Court of Appeal, and the House of Lords[9], in Soden.

[16]

Sons of Gwalia Ltd, the first appellant, was a publicly listed gold mining company. On 29 August 2004, administrators were appointed pursuant to s 436A of the Act. It now appears that, at the time, the shares in the company were worthless. On 18 August 2004, the respondent had bought 20,000 shares in the first appellant at a cost of $26,200. The respondent alleges that, in breach of the stock exchange listing rules, the first appellant had failed to notify the Australian Stock Exchange that its gold reserves were insufficient to meet its gold delivery contracts and that it could not continue as a going concern. The respondent says that he was a victim of misleading and deceptive conduct and that the first appellant contravened s 52 of the Trade Practices Act 1974 (Cth), s 1041H of the Act and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth). He claims to be entitled to compensation, his claim being for the difference between the cost of his shares and their value (nil). There are many other shareholders with similar claims.
The proceedings have been brought to test the entitlement of shareholders in the position of the respondent to claim, in competition with other creditors, under a deed of arrangement under Div 10 of Pt 5.3A of the Act which includes a provision which, by reference, incorporates s 563A. The case has been argued on the assumption that the respondent can show one or more of the alleged contraventions of statute, and the consequential damage asserted.
Section 563A, like some other provisions of the Act, uses the expressions "debt" and "claim" interchangeably, and argument proceeded upon the basis that a liability for unliquidated damages may be a debt within the meaning of the section. This is a topic that was dealt with in some detail by Emmett J, but it is unnecessary to pursue the matter. Three aspects of the respondent's claim should be noted. First, the amount of the claim is not based on the amount of capital paid up on the shares which the respondent purchased. It is based on the market price of the shares. The company's capital structure, and the paid-up value of its shares, may have had some indirect bearing on the market value of the shares, but the amount paid up on the shares is not an integer in his claim for damages. Secondly, there was no contract between the first appellant and the respondent concerning the purchase of the shares. The claim arises out of harm suffered by reason of conduct of the company that was in contravention of certain statutory norms of behaviour. Thirdly, while the appellants acknowledge that the fact that the respondent was a member of the first appellant at the time he made his claim is essential to their argument concerning the suggested operation of s 563A, that fact is not essential to his claim. His claim would have been the same if he had sold his shares (for example, to crystallise his loss for tax purposes) before he made the claim, or if for some reason his name had never been entered on the company's register of members. The appellants accept that if the respondent had sold his shares before he made his claim, the first appellant's debt would not be owed to him in his capacity as a member. In other words, they accept that s 563A has a temporal aspect.

[17]

Both appellants submitted that principles reflected in the decision of the House of Lords in Houldsworth v City of Glasgow Bank[10] supported their construction of s 563A, but the second appellant also relied upon an argument said to be independent of that section. If the argument is correct, s 563A would have no application to the case, for it only applies where there is a debt owed by a company to a person, and then requires a decision as to whether the debt is owed to the person in the person's capacity as a member.
The history of s 563A is set out in the reasons of Hayne J. The section had its origins in s 38(7) of the Companies Act 1862 (UK). In that Act, and in subsequent United Kingdom and Australian legislation, until relatively recently, it took the form of a qualification (or, perhaps, a qualification upon a qualification) to a general provision concerning the liability of members to contribute in a winding-up. Broadly stated, the 1862 Act provided that in the event of a winding-up members were liable to contribute to the assets in order to meet the company's liabilities. In the case of a limited company, no contribution was required beyond the amount, if any, unpaid on the shares. However, no sum due to any member, in his character of a member, by way of dividends, profits, or otherwise, would be deemed to be a debt of the company payable in competition with general creditors, but such sum might be taken into account in making adjustments as between contributories. That was still the general scheme of s 360(1) of the Companies (Victoria) Code that was considered and applied by this Court in Webb Distributors (Aust) Pty Ltd v Victoria[11], and of the United Kingdom legislation considered by the House of Lords in Soden. In the Act, s 563A appears in a somewhat different context, and its effect of subordination rather than denial is clearer, but its origins are unmistakable. Section 360(1)(k) provided that "a sum due to a member in his capacity as a member by way of dividends, profits or otherwise shall not be treated as a debt of the company payable to that member in a case of competition between himself and any other creditor who is not a member" but may be taken into account in a final adjustment of rights among contributions. The provision that a sum due was not to be treated as a debt in a case of competition between the member-creditor and other creditors might account for some elision of the issue whether a debt is provable and the issue of its ranking in terms of priorities. However that may be, s 563A clearly distinguishes those issues. It assumes that a certain debt is provable in a winding-up, and postpones it to certain other claims.
According to the second appellant's argument, there is a principle of common law, emerging from Houldsworth, which precludes a shareholder from proving in a winding-up (or under a deed of company arrangement) for damages for misrepresentation inducing any acquisition of shares unless the shareholder has first rescinded "the membership contract". Once the company has become insolvent or has gone into liquidation or voluntary administration, rescission is not available. If that argument were correct, s 563A could not apply, because it assumes, and subordinates, a liability of the kind which, according to this argument, does not exist. The submission did not make clear what was said to be involved in the notion of the rescission of the membership contract. The respondent in the present case was not a party to any contract with the first appellant providing for the acquisition of the shares in question.
The principle in Houldsworth is famously elusive[12]. For present purposes, it is sufficient to observe that, in Webb Distributors, this Court referred to a "proposition which the House of Lords distilled ... from the provisions of the Companies Act 1862" and held that it had "received statutory recognition in s 360(1) of the Code"[13]. There is a chronological curiosity here. The language of s 360 of the Victorian Code reflected the language of s 38(7) of the 1862 Act. Houldsworth did not apply that statutory language (of subordination) but turned on a wider principle, and produced a different result, although one that also was unfavourable to the claimant. Houldsworth was decided in 1880. The statutory language can hardly be said to reflect the decision in Houldsworth. It is older than the decision, and it produces a different result.
The difference between denial and postponement or subordination of a claim is not merely technical. At first sight it may appear puzzling that the majority in Webb Distributors held that s 360(1)(k) of the Victorian Code applied[14], and yet approved a holding "that the shareholders could not prove in the liquidation because they were precluded both from rescinding their contracts and from maintaining actions for damages in respect of their acquisition of the shares"[15]. If there were such a preclusion, then s 360(1)(k) would not have applied. Presumably, "prove" was taken to mean "prove in competition", but it is not easy to explain the concept of preclusion in the application of s 360(1)(k).
Some of the reasoning in Webb Distributors may have prompted the second appellant's preliminary point. The majority were not disposed to decide "whether Houldsworth is right or wrong"[16], identifying the critical question as being "whether the proposition which the House of Lords distilled in the case from the provisions of the Companies Act 1862 [was] incorporated in the provisions of the Code"[17]. They answered that question: yes, in part[18]. The scheme of the Act in relation to raising and maintenance of share capital is somewhat different from that of earlier legislation, and very different from that of the 1862 Act. As will appear, Houldsworth was never authority for a principle as wide as that asserted by the second appellant. The refusal of the majority in Webb Distributors to consider whether the decision in Houldsworth was right or wrong shows that they decided that case by applying s 360(1)(k) of the Code. They regarded some of the considerations underlying Houldsworth as relevant to the interpretation of s 360(1)(k), operating in addition to the Code. The issue in this case is to be decided upon the true construction of the provisions of the Act and, in particular, s 563A.

[20]

No such provision is to be found in the Act. The contrast between s510(b) and s 563A is obvious. If Parliament were to introduce such a provision, it would need to consider what would be the practical effect upon the rights conferred upon people who deal in shares and securities by legislation of the kind relied upon by the respondent. One thing is clear. Section 563A does not embody a general policy that, in an insolvency, "members come last". On the contrary, by distinguishing between debts owed to a member in the capacity as a member and debts owed to a member otherwise than in such a capacity, it rejects such a general policy. If there ought to be such a rule, it is not to be found in s 563A.
The construction argument based on history, and, in particular, "the principle in Houldsworth", overstates the width of that decision, and of others that have followed. At the commencement of these reasons, reference was made to two possible sources of influence, one relating to partnership law, the other relating to the raising and maintenance of share capital, that might have been at work in Houldsworth. The case was brought by an investor who acquired from a bank, which was an unlimited company registered under the 1862 Act, an amount of its stock. The company went into liquidation. Since it was an unlimited company, the investor became liable to pay calls as a contributory, and the liability was unlimited. The investor claimed he had been induced by fraud to take up the stock. Because the winding-up had commenced, he could not claim rescission of the contract of allotment. He claimed damages against the company for fraud, the damages including his liability on past and future calls. The claim failed. It is to be noted that what the investor was attempting to do was, in effect, to obtain from the company reimbursement in respect of his liability to pay calls in the winding-up of the company, in circumstances where he could no longer obtain rescission of the contract of allotment pursuant to which he acquired the shares which exposed him to the liability to pay calls. In In re Addlestone Linoleum Co[19], Lindley LJ said:

[22]

In Addlestone, a company issued, as fully paid, shares which were in truth not fully paid, and a liquidator made a call for the unpaid balance. The shareholders sought to prove in the winding-up for damages measured by their liability on the call. Kay J held that the statutory equivalent of s 563A applied because the shareholders were making their claims in the character of members of the company. Their contracts of subscription for the shares obliged them to pay the money the subject of the call, and they were seeking to neutralise their obligations under those contracts. The Court of Appeal upheld the decision of Kay J adverse to the shareholders, but on the basis of the Houldsworth principle, as explained by Lindley LJ. That explanation turned upon the inconsistency between the contract of subscription (which could not now be rescinded) and the claim to recover capital which, under the contract of subscription, the claimant remained liable to pay. It is not fruitful to speculate about the extent to which that perception of inconsistency was affected by either or both of the influences mentioned at the commencement of these reasons.
Webb Distributors concerned non-withdrawable shares in a building society which were issued by the building society with certain representations as to the rights attaching to them. The building society was being wound up. The people to whom the shares were issued claimed that they were entitled to damages for misrepresentation, their claims being based on s 52 of the Trade Practices Act 1974 (Cth). For reasons explained by the Court, provisions of the Companies (Victoria) Code were imported into the winding-up. The Court treated the non-withdrawable shares as though they were shares in a limited company, and the holders as though they had subscribed for such shares. The damages claimed were based upon the amounts subscribed for the shares. Section 360(1) of the Code provided that on the winding-up of a company members were liable to contribute to the company's debt, subject to certain qualifications including:

[27]

The first sentence in the above paragraph is relied upon by the respondent. He says it covers the present case. As to the second sentence, it is important to bear in mind that what was referred to as "the purchase price" of the shares was money paid to the building society which issued the non-withdrawable shares as the consideration for the issue: in effect, the subscription price.
The hypothesis of s 360(1)(k) was that there was a sum due to a member. The issue was whether the sum was due to the member in his capacity as a member. It is difficult to reconcile the acceptance of the hypothesis with a proposition that there was a fatal inconsistency between the nature of the claims being made in Webb Distributors and the claimants' position as shareholders. The approval given by the majority in Webb Distributors to the reasoning of Kay J in Addlestone suggests that, on the issue of the capacity in which sums were due to the claimants, the conclusion that the sums were due to them in their capacity as shareholders was regarded as being reinforced by the idea that they were in substance seeking to recover capital they had subscribed, which was comparable to the attempt by the claimants in Addlestone to avoid paying capital they were liable to contribute.
In Soden[22] the House of Lords treated Addlestone and Webb Distributors as standing "on exactly the same footing", that is to say, the protection of creditors from indirect reductions of capital, a consideration relevant to cases of subscription for shares but irrelevant to purchases from third parties of previously issued shares.
Soden raised the same problem as the present case, and the House of Lords reached the same conclusion as the Federal Court in this case. It is argued for the appellants that, in the application of s 563A of the Act, no valid distinction can be made between the position of a shareholder who claims to have subscribed for shares in a company in consequence of the misleading or deceptive conduct of the company, and that of a shareholder who claims to have purchased shares on the market (or, perhaps, retained shares) in consequence of such conduct. The appellants, it has been noted, accept as valid a distinction between a purchaser who buys shares on the market and then sells them before making a claim against the company, and a purchaser who retains them and makes a shareholder claim. That shows that what is or is not a valid distinction is not to be decided in terms of broad economic equivalence, but must be founded on the terms of the statute. From an economic point of view, there is little difference between the distinction which the appellants accept and the distinction which they reject. However, s 563A requires a line to be drawn between a shareholder claiming in the capacity of a member and a shareholder claiming otherwise than in the capacity of a member. To draw that line it is necessary to analyse the nature of a claim; it is not sufficient to describe its effect on other creditors.
In a passage from Webb Distributors quoted above, the majority said that s 360(1)(k) would not prevent claims by members for damages flowing from a breach of a contract separate from the contract to subscribe for shares. In a footnote, they gave two examples. The first, In re Dale and Plant Ltd[23], concerned a claim by a managing director, who was obliged by the company's articles of association to be a shareholder, for arrears of salary and breach of his contract of employment. Kay J thought it "very clear" that s 38(7) of the 1862 Act did not apply[24]. He rejected an argument that s 38(7) was intended to introduce into company law the principle of partnership law referred to at the commencement of these reasons. The second, In re Harlou Pty Ltd[25], concerned a contract of service which required an employee to purchase shares in a company, and required the company to find a purchaser for the shares on termination of service. In both of those cases, a member of a company was claiming damages for breach of contract by the company. In the second case, the contract related to the member's shares in the company.
Debts owed to a member by way of dividends or profits are given in s 563A, as in its predecessors, as examples of debts owed by a company to a person in the person's capacity as a member. The claim made in Addlestone has been treated as an example of what is embraced by the term "otherwise". In Soden, Lord Browne-Wilkinson referred to "the statutory contract" by which he meant the rights and obligations flowing from the United Kingdom counterpart of s 140 of the Act, together with the rights and liabilities conferred and imposed by other provisions of the Act. Section 140 provides that a company's constitution has effect as a contract between the company and each member and between a member and each other member. The concept of statutory contract was discussed by McHugh and Gummow JJ in Bailey v New South Wales Medical Defence Union Ltd[26]. Lord Browne-Wilkinson concluded that an amount owing to a member in the character (capacity) of a member was an amount falling due under and by virtue of what he described as the statutory contract. To that his Lordship added "claims based upon having paid money to the company under the statutory contract which the member says that he is entitled to have refunded by way of compensation for misrepresentation or breach of contract"[27]. He appears also to have had in mind claims based upon liabilities incurred (even if not discharged) under the statutory contract, and claims (when capable of giving rise to debts within s 563A) advanced by way of relief from obligations imposed by the statutory contract.
What determines the present case is that the claim made by the respondent is not founded upon any rights he obtained or any obligations he incurred by virtue of his membership of the first appellant. He does not seek to recover any paid-up capital, or to avoid any liability to make a contribution to the company's capital. His claim would be no different if he had ceased to be a member at the time it was made, or if his name had never been entered on the register of members. The respondent's membership of the company was not definitive of the capacity in which he made his claim. The obligations he sought to enforce arose, by virtue of the first appellant's conduct, under one or more of the statutes mentioned in the earlier description of the respondent's claim.
The decision in Webb Distributors neither requires nor supports any different outcome. Principles concerning the raising and maintenance of share capital led this Court to conclude that, on the true construction of s 360(1)(k) of the Victorian Code, the claims in that case should be treated as claims for sums due to members in their capacity as members. For the reasons already given it would be wrong to conclude that, on the true construction of s 563A of the Act, the debt owed to the respondent is owed to him in his capacity as a member of the first appellant.

[28]

Each appeal should be dismissed with costs.
GUMMOW J. The resolution of the issues in these appeals turns upon the construction of certain provisions of the Corporations Act 2001 (Cth) ("the Act") incorporated in a Deed of Arrangement to which Sons of Gwalia Ltd ("Gwalia") is subject. There is a dispute respecting the application of those provisions to "shareholder claims" by Mr Margaretic, the first respondent. The expression "shareholder claims" is used here to identify claims for damages against a company by a subscriber for, or purchaser of, its shares, where the claimant asserts reliance upon misleading or deceptive conduct of the company or other wrongful act or omission on its part which was causative of that shareholder's loss. ING Investment Management LLC ("ING") is a creditor of Gwalia which is not a shareholder and its interests are adverse to those of Mr Margaretic.
The apparently seamless continuity in the reception and development of the common law in Australia is apt to distract attention from the supreme importance of statute law. In this vein, the submissions presented on these appeals to varying degrees proceeded from an implicit premise which is false.
There are no "general principles of company law" applicable in a winding up and to which there must be reconciled those provisions of the Act and its predecessors (beginning with the Companies Act 1862 (UK) ("the 1862 UK Act")[28]) which stipulate a particular system of proof of debts and the ranking of debts and the placement of "shareholder claims" in that system.
Further, in any quest to locate such general principles, the older case law is not always a satisfactory guide. Excessive significance should not be attributed to statements in nineteenth century British cases, decided at a time of endeavours to "flesh out" the developing body of statute law[29] by use of principles derived from a range of sources in the general law. These sources included the law of agency, partnership, bankruptcy, and trusts. It later was recognised that some of those endeavours miscarried. One was the attribution to directors of the character of trustees of the assets of the company, and another the treatment of a company in liquidation as trustee of its assets for distribution among creditors[30].
In his elaborate judgment in Australasian Temperance and General Mutual Life Assurance Society Ltd v Howe[31], Isaacs J referred both to the gradual development, culminating in Salomon v Salomon & Co[32], of the doctrine that the corporation has a distinct legal personality, and to various arguments which had rested upon the want in a corporation of physical personality. Isaacs J noted[33] that as counsel Willes J had argued (unsuccessfully) in 1851 that an action for trespass for assault and battery did not lie against a corporation aggregate because a corporation could neither beat nor be beaten in its body politic[34] but that, in 1867, as Willes J he had held in Barwick v English Joint Stock Bank[35] that the fraud of the agent of a corporation was properly described in law as the fraud of the corporation.

[40]

The central issues on the appeals should be resolved in favour of Mr Margaretic and the appeals dismissed.
First, upon a proper construction of the Act, Mr Margaretic's claims may be proved in a company winding up pursuant to s 553(1) of the Act. The terms of that provision remove any impediment to claims of this kind. Secondly, Mr Margaretic's claim is not a debt owed to him in his "capacity as a member" of Gwalia, whether by way of dividends, profits or otherwise; the claim is not to be postponed by s 563A of the Act to claims made by "persons otherwise than as members of the company".
I agree generally with the reasons given by Hayne J. What is said in these reasons assumes a reading of what is said by his Honour.
In what follows, I deal further with two additional and related points. The first is the adequacy of the reasons given in Webb Distributors (Aust) Pty Ltd v Victoria[42] and the second is the dependence upon that reasoning of a principle said to be derived from the speeches in the House of Lords in Houldsworth v City of Glasgow Bank[43].
It also is appropriate to deal in some detail with Houldsworth for a particular reason which emerges from the way in which ING put its case on what would be a threshold issue. In its written submissions, ING submitted that "the principle in Houldsworth" prevented, as a matter of common law, a shareholder claim such as that of Mr Margaretic arising in the first place, irrespective of statutory issues respecting admission to proof and ranking of claims. In the course of oral argument, counsel appeared to shift ground but, however that may be, in subsequent supplementary written submissions ING again invoked "the rule in Houldsworth" and its significance for Webb, upon which decision ING relied.
As these reasons will seek to demonstrate, in Australia the existence of any such common law "principle" of company law based upon Houldsworth should be rejected. Further, Houldsworth did not supply the support relied upon for the reasoning in Webb.

[41]

Webb concerned admission to proof, not ranking of claims admitted to proof[44]. However, Gwalia and ING submitted that the reasoning in Webb was determinative of the issues of statutory construction upon which the appeals turned. Mr Margaretic challenged the applicability of the reasoning in Webb and, alternatively, its correctness. Gwalia and ING submitted that leave should not be given to re‑open Webb.
The facts of Webb are described in the judgment of Hayne J; it is not necessary to repeat them here. There is a question whether Webb may be distinguished on the basis that it concerned only claims by shareholders who acquired their shares by subscription, whereas Mr Margaretic purchased his shares from a third party on the market conducted by the Australian Stock Exchange. A distinction of this nature was drawn by the House of Lords in Soden v British & Commonwealth Holdings Plc[45], and Webb was distinguished on this ground. Both Gwalia and ING submitted that the distinction was without substance because the reasoning in Webb was equally applicable to claims by "transferee shareholders" as to claims by subscribers, and was intended by the Court to apply to all claims by members. Mr Margaretic supported the distinction but, as previously indicated, did not shrink from seeking leave to argue the correctness of Webb.
It is fruitless to pursue narrow factual distinctions of the kind adverted to above. Section 563A of the Act is expressed in terms of the postponement of certain debts. Unless the means by which a person became a member (that is, by acquiring shares by subscription or by transfer) is relevant to the characterisation of the "debt" owed by the company to the person as one owed to the person in his or her capacity as a member or not, the distinction is difficult to maintain as a matter of principle. This especially is so in a context where s 231 of the Act defines "member" without making any distinction of that kind. Therefore, alleged deficiencies in the reasoning in Webb should be grappled with; the decision cannot be put to one side on the basis of factual distinctions of the kind mentioned above.
In their joint judgment, the majority in Webb (Mason CJ, Deane, Dawson and Toohey JJ) concluded that the holders of non‑withdrawable shares were not entitled to prove in the winding up of the building societies in respect of their claims in deceit and for misleading and deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act"). This conclusion rested upon four related propositions. The first was that the "principle" on which Houldsworth was decided was that the share capital represents a "guarantee fund" and "protection" to creditors which should not be returned to shareholders other than on a permissible reduction of capital[46]. The second was that this "principle" received statutory recognition in s 360(1) of the Companies (Victoria) Code ("the Code")[47]. The third proposition[48] was that par (k) of s 360(1) of the Code bore the same interpretation as that ascribed to s 38(7) of the 1862 UK Act in In re Addlestone Linoleum Co[49] by Kay J[50]. Those sections were respectively the immediate forebear and the first progenitor of s 563A. The fourth proposition, which depended on the first three, was that[51]:

[46]

In Webb, reference was made[60] to the explanation given by Jessel MR of the unavailability of a remedy of rescission after a company is wound up. In argument, the Master of the Rolls stated[61] as "doctrine" the proposition that rescission must be impossible after a company is wound up because the company "ceases to exist"; further, he said that this was the meaning of observations by Earl Cairns LC in the then recent decision in Houldsworth.
Several points should be made here. The first is that it since has become clear that a winding up has no immediate effect upon the corporate existence or personality, or upon the powers of the company[62]. Secondly, it is not readily apparent that, when explaining in Houldsworth why the remedy for damages in deceit was not available, Earl Cairns LC relied upon any non‑existence of the corporation.
Thirdly, however, in administering an equitable remedy such as that of rescission, it is proper to take into account both the supervening, albeit indirect, interests of the shareholders and creditors referred to by Isaacs J in Blyth[63], and the changes brought about in the enjoyment of the rights of shareholders and creditors by the administration required by a winding up, even where the claims of creditors will be satisfied. It is in this context that one may agree with the view of Dixon J in Southern British National Trust Ltd v Pither[64] that the denial of equitable relief to rescind the contract of membership after winding up was inevitable.
However, it is difficult in this area to state propositions in absolute terms. Shortly after Pither, in Elder's Trustee and Executor Co Ltd v Commonwealth Homes and Investment Co Ltd[65], Rich ACJ, Dixon and McTiernan JJ held that the plaintiff was entitled to an order for rectification of the register of members and stayed an order for repayment of subscription moneys with interest to enable the plaintiff to prove in the winding up of the company for those moneys. The proceedings had been instituted six weeks before the lodgment of the winding‑up petition, but at a time when the company was in a hopeless financial position.
Whatever be the basis in principle for the rescission cases, they do not dictate any particular conclusion respecting the denial in Houldsworth of the existence of any remedy in damages. Something more now should be said respecting that case.

[47]

As noted above, the "principle" derived by the majority in Webb from Houldsworth they identified as being that "a shareholder may not, directly or indirectly, receive back any part of his or her contribution to the capital of the company"[66]. The majority had earlier in their reasons set out[67] a passage from the judgment of Lindley LJ in Addlestone[68] in which he stated in similar terms "the principle" on which Houldsworth was decided. The majority in Webb also accepted the thesis to similar effect advanced by Professor Gower, to which further reference will be made.
Their Honours in Webb acknowledged that the above "principle" could no longer be supported in absolute terms, given provisions in the Code permitting authorised reductions of share capital. These provisions had their origin in the Companies Act 1867 (UK)[69], s 9 of which had conferred an express power for a company to include in its Memorandum of Association a power to reduce its capital, although subject to confirmation by the court[70]. Prior to the enactment of these provisions, the effect of ss 8 and 12 of the 1862 UK Act appears to have been, in the case of a limited company, to prohibit reductions of capital[71]. In the opinion of the majority in Webb, the statutory provisions for the reduction of capital were "not inconsistent with the Houldsworth proposition" because they proceeded on an acceptance of the reasoning underlying that case; this was that "subscribed capital [is] a protection to creditors"[72].
However, Houldsworth cannot be explained in those terms. Rather, it is the gradual development of legal thought respecting the nature of corporate personality which Isaacs J later traced in Howe[73] and the use of inapt analogy drawn from established areas of the law which is manifested in Houldsworth.
Houldsworth was an appeal from Scotland in a proceeding on an interlocutory plea by the defenders as to the relevancy of the pursuer's action against the City of Glasgow Bank, in liquidation, for damages caused by fraudulent representations which allegedly induced him to take up stock in the Bank. The procedure adopted in Scotland appears to have been similar to a demurrer.
The Bank had been incorporated under the 1862 UK Act as an unlimited joint stock company, but Houldsworth was not decided upon s 38 of the 1862 UK Act, dealing with the liability of members for contributions on a winding up, or upon principles concerning the reduction of capital. Moreover, Houldsworth was decided at a time when the 1862 UK Act was relatively new and when other areas of law applicable to the relations between members, directors and the company were in a state of fluidity.
The Bank had stopped payment on 2 October 1878 and, at an extraordinary general meeting held on 22 October, resolutions were passed for a voluntary winding up; there was a deficiency of some £5 million and this would fall to be made up by calls on shareholders[74]. Houldsworth claimed against the Bank and the liquidators damages in sums representing the price paid for his shares, a call already made and the anticipated amount of further calls to meet the above deficiency in assets. In that respect, his claim was "for a total relief and indemnification, after the creditors have been fully paid, out of the surplus assets of the company, or out of the private estates of those of his fellow-partners who then remain solvent"[75].
The Court of Session accepted the Bank's submissions that, while an action for damages might lie against the fraudulent officials of the Bank, the Bank itself had not authorised their actions, nor had it adopted them except in the sense of getting the benefit of the resulting contract; all the company could be asked to do was to give up the contract[76]. Neither in the Court of Session nor in the House of Lords was the litigation determined by reference to the law respecting admission or ranking of claims in a winding up conducted in accordance with s 38 of the 1862 UK Act. It is incorrect to say, as was remarked in Webb, that the House of Lords "distilled" a proposition for which Houldsworth is authority "from the provisions of the [1862 UK Act]"[77]. Rather, Houldsworth failed at the threshold; his action in damages did not lie against the Bank.
Two issues were considered by the House of Lords in Houldsworth. One, emphasised particularly by Earl Cairns LC[78], concerned the existence of a qualification to what he stated as the general rule that a purchaser of goods who bought under a fraudulent misrepresentation may retain the goods and recover any damages sustained by reason of the fraud[79]. His Lordship held that there was an exception where the plaintiff is a shareholder who retains the shares acquired by reason of the fraud of the agents of the company, but seeks damages against the company. Such a claim was said by the Lord Chancellor to be[80]:

[59]

Barwick was decided on 18 May 1867, after argument in Addie had concluded, and two days before the House of Lords delivered judgment on that appeal. The matter seems to have been regarded as still unsettled when Houldsworth came before the House of Lords a decade later, as the observations of Lord Blackburn reveal[102]. However, in Houldsworth, the House of Lords is to be regarded as having rationalised Barwick and Addie by confining Addie to the case of persons who had been induced by the directors to subscribe for shares in a corporation.
Ashburner, writing in 1902, considered Houldsworth as establishing the "one exception to the rule that the principal is liable for the frauds of his agent committed in the matter of his agency and for the principal's benefit"[103]. Houldsworth was treated in similar terms in the third edition of Kerr's Treatise on the Law of Fraud and Mistake, which also appeared in 1902[104]. But was this "exception" soundly based? The better view is that it was not.
Houldsworth sustained the outcome in Addie in the case of these transactions with subscribers by reference to the "contract" into which the shareholder had entered, and which the shareholder must affirm in order to sustain the action. Mention has already been made of the approach taken, particularly by Earl Cairns LC, in relation to this contract. It was characterised variously by their Lordships as requiring that the assets of the company should be applied in paying its "antecedent debts and liabilities"[105], that shareholders "should all contribute equally to the payment of all the company's debts and liabilities"[106], and that shareholders should "contribute to make good all liabilities of the co‑partnership as if this incoming partner had been a member of the partnership from the beginning"[107].
It is not easy to discern why an action for damages was inconsistent with the features of the contract whereby shares were taken up. Nor is it clear why this inconsistency should have prevented the shareholder from claiming that the fraud of the directors was imputable to the company.
Accordingly, Houldsworth should not be regarded in Australia as establishing any principle based upon the above reasoning; nor does it establish any exception respecting the responsibility of a principal for the frauds of an agent, stated by Ashburner in the passage referred to above.
It is true that acceptance of the doctrine associated with the subsequent decision in Salomon[108] of the endowment of the corporation with a distinct legal personality has not gone without modern criticism. In a revenue case, Gorton v Federal Commissioner of Taxation[109], Windeyer J remarked upon "the unreality and formalism" engendered in the law by Salomon. The facts considered in Halloran v Minister Administering National Parks and Wildlife Act 1974[110] were dictated by fiscal considerations[111], and may be a recent example of that tendency, although the steps taken nevertheless had legal efficacy[112].
The propositions that a corporation has no hands save those of its officers and agents and no mind save the mind of those who guide its activities, and cannot be subjected to the range of punishments visited upon a natural person, in general has not, as Brennan J explained in Environment Protection Authority v Caltex Refining Co Pty Ltd[113], relieved corporations from the attribution of criminal guilt.
However, as Caltex decided, the considerations which supported the privilege of individuals against self‑incrimination did not sustain the extension of the privilege to corporations. They cannot be witnesses or swear or affirm an affidavit. Nor may the commercial interests of a corporation suffice for protection by a tort based on protection of privacy[114]. But considerations of that nature do not support the outcome in Houldsworth.

[60]

Reference already has been made to the reliance upon the thesis of Professor Gower to the effect that the decision in Houldsworth is explicable by the notion that share capital is a "guarantee fund" for creditors[115]. He sought to rationalise what was described as the "anomalous rule" in Houldsworth by reference to later conceptions as to the nature of share capital explained in Trevor v Whitworth[116] and its sequelae.
Section 13 of the Limited Liability Act 1855 (UK)[117] had provided that a company should be wound up once three quarters of its subscribed capital stock had been lost. But the validity of a proposition such as that of Professor Gower could not have been sustained once the point was reached after the 1862 UK Act that there was no impediment to a company carrying on business even once it had exhausted its original capital through trading.
In any event, there is much to be said for the view that a company satisfying its liability in tort to a member should not be characterised as attempting an unauthorised reduction of capital. The award of damages is not charged upon any fund representing capital. Large awards may adversely affect the market value of shares in the company, but they do not require any return of capital.
What this discussion reveals is that the "principle" attributed by the majority in Webb to Houldsworth, as the first step in their reasoning, reflects the attempt to rationalise that case which is discussed above. Further, as to the second step in Webb, that concerned with s 360(1) of the Code, this provision did not embody that "principle", any more than it embodied the decision in Houldsworth. That case, as I have explained, must be understood in the milieu of developing doctrine applicable to company law. Neither the "principle" attributed to Houldsworth, nor Houldsworth itself, had anything to do with the presently relevant provisions of the Act and the Code. Section 360(1)(k) of the Code cannot have been enacted on the basis that Houldsworth represents an "entrenched rule of company law" which must be regarded as having been "expressly considered and approved" by the legislature[118]. The origins of s 360(1)(k) may be traced to the 1862 UK Act, which preceded Houldsworth.

[73]

The foregoing reveals that the validity of the four key propositions upon which the decision of the majority in Webb depended is open to question. In my view, they should not be accepted as correct in so far as they relate to the Act.
In Webb the majority concluded, on the basis of those propositions, that the claims by the holders of the non‑withdrawable shares were not debts to be admitted to proof in the winding up of the building society, but were sums owed by the company to them in their capacity as members of the company by way of dividends, profits, or otherwise. Webb concerned the Code where, as Hayne J indicates, claims of the kind now brought by Mr Margaretic (not arising from a contract with the company) would not have been admissible to proof. Nevertheless, it must be doubted whether the result reached by the majority in Webb was correct. However, there is no point in further consideration of that matter here.
It suffices to observe that, as a matter of principle, the reliance by Gwalia and ING on Webb does not assist their case. To that it should be added that the reliance by ING upon Houldsworth for a threshold principle of the kind discussed earlier in these reasons should be rejected.
I agree in the orders proposed by Hayne J.
KIRBY J. Two appeals are before this Court. They come from a judgment of the Full Court of the Federal Court of Australia, constituted by Finkelstein, Gyles and Jacobson JJ[134]. That judgment affirmed a decision reached, adversely to the appellants, by the primary judge in the Federal Court (Emmett J)[135].
The essential issue presented by each appeal concerns the operation of insolvency provisions in the Corporations Act 2001 (Cth) ("the Act"). In effect, it relates to the proof and ranking of claims against an insolvent company as between the general creditors (represented by the appellant in the second appeal ("the second appellant")) and shareholders in the company having claims against the company for alleged misleading and deceptive conduct contrary to other federal legislation (represented by the first respondent in each matter ("the respondent"))[136]. The general creditors assert that the shareholders' claims are postponed so that they rank after the satisfaction of those creditors' claims. The shareholder claimant asserts that, in this respect, shareholders' claims for damages against the company rank equally with the claims of the general creditors and are not subordinate to them.
The resolution of the difference between the parties depends on the meaning and operation of s 563A of the Act. More particularly, it depends on whether, in the facts and circumstances of this case (and upon the assumptions on which the respective arguments of the parties have been litigated), any "debt" owed by the insolvent company to the claimant shareholder, if the claims are proved, is one owed in that person's "capacity as a member of the company". The general creditors say that it is and is thereby postponed. The claimant shareholder says that it is not and asserts that his membership of the company is, in respect of the "debt owed", immaterial both to the "debt" itself and to the reasons why it is "owed".

[74]

A counter-intuitive outcome: The other members of the majority[137] have concluded, alike with the judges of the Federal Court[138], that the arguments of the general creditors fail. In the result, upon the assumptions on which the proceedings have been conducted, any "debt" later demonstrated to be "owed" by the company to the respondent will not be postponed until all debts[139] owed to general creditors have been satisfied, but will rank with them in the distribution of the assets of the company. This enhances significantly the claimant shareholder's prospects of recovery.
On the face of things, this conclusion seems to be counter‑intuitive. It appears somewhat difficult to reconcile with the main thrust of this Court's reasoning and conclusion in Webb Distributors (Aust) Pty Ltd v Victoria[140]. I am inclined to agree with the analysis of that decision contained in the reasons of Gummow J[141]. In light of the present legislation, specifically s 563A, there would appear to be no foundation for the operation of the distinction drawn in that case. Webb Distributors is proof once again (if further proof is needed) of the dangers of attributing undue weight to what was said in England in the 19th century when attempting to construe contemporary Australian legislation[142].
The counter-intuitive impression arises in this way. The respondent's claim is made against the company of which he was, and still is, a member. His claim concerns the value of the very shares by which his membership of that company was procured, that is, by the acquisition on the Australian Stock Exchange of the shares in the company at the then market rate for such shares. The foundation of the respondent's complaint against the company is that it did not conform to the applicable federal legislation requiring disclosures to be made, and obliging the avoidance of misleading and deceptive conduct, which could deceive the very persons, that is, potential shareholders, who were contemplating the acquisition of shares in, and membership of, the company.
Continuous disclosure to shareholders: The respondent was, it is true, not seeking to recover any paid‑up capital or to avoid any liability to make contribution to the company's capital. In this sense, his membership of the company was not, as such, definitive of the capacity in which he made his claim against the company when it suddenly appeared that the shares in the company, just acquired, were worthless[143]. However, one of the principal reasons for the enactment of the federal legislation, invoked by the respondent to establish his claim against the company, was the provision of protection, in circumstances such as arose in his case, to persons like him. The obligation of continuous disclosure, introduced by the Act[144], was specifically designed and enacted to protect shareholders and potential shareholders from losses that might be suffered from undisclosed facts and to afford a foundation that would prevent, compensate for and reduce the incidence of such losses[145].
In these circumstances, the type of claim brought by the respondent is not atypical or unexpected. It is a claim by a shareholder for deceptive and misleading conduct, so far as it affected potential shareholders for which the Federal Parliament, by its enactment, has provided for new remedies that are designed, ultimately, to improve the protection of (and remedies available to) Australian shareholders as such. This might not be the only purpose of the legislation or the sole circumstance in which it applies. But it certainly is a typical circumstance and, one might say, a usual and predictable one. This fact gives rise to an arguable foundation for a submission, on the part of the general creditors represented by the second appellant, that the claim made by the respondent against the company whose shares he has acquired is to be characterised as one made in respect of an alleged "debt owed by a company to a person in the person's capacity as a member of the company".
A purposive approach: The ultimate duty of a court in a case of this kind is to give effect to the meaning of the law as expressed by the Parliament. That meaning is ascertained from the language of the enactment. But it is also ascertained by reference to the context in which the provision in question appears and by perceptions that may be derived from that context, the legislative history and the apparent policy of the Act, as to the respective rankings of claims against a company, which has become insolvent, of general creditors as a class and disaffected shareholders, represented by persons such as the respondent.
One can readily conceive why, as a matter of policy, strong arguments can be mounted that claims by persons such as the respondent should be postponed to claims made by the general creditors of the insolvent company. Putting it broadly, most general creditors, although not all, will be innocent of the business and entrepreneurial decisions of the company that led to its insolvency. Most will have dealt with the company as outsiders in good faith on the basis of its incorporation and, where applicable, its listing on the Stock Exchange and its subjection to regular and rigorous legal obligations. On the other hand, persons such as the respondent are investors. As such, they are not involved in the provision of goods and services to the company, as ordinary creditors generally are. Their interest in membership of the company is with a view to their own individual profit. Necessarily, their investment in the company involves risks, albeit risks increasingly informed by mandatory disclosures. In particular, where, as here, the company was involved in the extraction of gold, the acquisition of which notoriously and historically involves substantial risks and a significant degree of chance, the purchase of shares will commonly entail a measure - even a high measure - of speculation. Such speculation would ordinarily be expected to fall on the shareholders themselves, not shared with general creditors who would thereby end up underwriting the investors' speculative risks.
The policy of the Act: If, therefore, one were to approach the meaning of s 563A of the Act, in proceedings such as the present, with an object to give effect to a presumed general policy of the Act, it would by no means be surprising if a textual and contextual analysis of the Act had the consequence of postponing the claims against the company of investors, such as the respondent, to those of the general creditors. To the claim that he was the victim of misleading and deceptive conduct, the answer of the general creditors would inferentially be to the effect: "By purchasing your shares in a gold mining venture, you engaged in an inescapably risky and speculative operation. Now you claim to have been deceived. But that kind of risk is one that is inherent in the very acquisition of shares in a company by which you become a member of it. You can make your claim for deception; but it ranks after the general creditors have recovered their proved losses. Your claim or 'debt', if owed at all, is owed to you in your capacity as a member of the company."
Whilst the interpretation to be given to s 563A of the Act cannot be confined to the circumstances of gold mining companies or the investment decisions of persons such as the respondent, his case and its circumstances are by no means unique. Nor is his claim singular or atypical. One can thus acknowledge significant policy reasons, arguably consistent with the language, purpose and design of the Act, that would postpone the respondent's entitlement to the recovery of his "debt owed by [the] company" to the debts that the company owed as a result of its operations to the general creditors, whose involvement with the company is typically not, as such, risky or speculative in character.
Compatibility with past authority: The previous decision of this Court in Webb Distributors is described elsewhere as proceeding upon a "chronological curiosity"[146] and resting uneasily on a questionable interpretation of the "elusive"[147] principle purportedly derived from Houldsworth v City of Glasgow Bank[148]. On the other hand, the result in Webb Distributors is not so puzzling if the approach taken to the statutory issue presented is informed by the type of considerations just mentioned. I have explained those considerations because they make me more sympathetic to the arguments of the second appellant than might otherwise appear. Those considerations rest, ultimately, on the perceived claims to priority respectively of general creditors and investing shareholders, the latter of whom become members of a company that fails and who then seek to recoup their resulting losses from the assets of the company itself. In such a conflict, it is not difficult (at least for me) to feel a greater sympathy for the general creditors and their claim to priority in the recovery of their claims[149].
Nevertheless, in the end, alike with the other members of the majority, I have concluded that a correct analysis of the statutory provisions in issue in these appeals does not sustain the arguments of the general creditors. I will briefly say why.

[75]

A statutory question: The starting point for the answer is a clear appreciation that the issue presented for decision is, from first to last, one of statutory interpretation. Relevantly, it is presented by the terms of s 563A of the Act. It is not concerned with the application of common law principles which anticipated, or would circumvent the application of, the enacted statutory criteria[150].
A study of past decisions, in this country, in England and elsewhere, may be helpful, by analogy, to a court applying the relevant statutory provisions to the case in hand. This is so because of the long history of statutory provisions like s 563A of the Act, detailed by Hayne J in his reasons[151]. However, in the end, the duty of this Court, in disposing of the appeals, is to give effect to the provisions of s 563A itself[152]. Having regard to the limited question which the parties to the appeals chose to contest, the question presented for analysis effectively comes down to the interpretation of the phrase "in the person's capacity as a member of the company".
It is of the nature of contestable statutory provisions (such as this one) that persuasive arguments can commonly be mounted in support of the alternative interpretations[153]. This is why, in cases such as the present, it is impossible to be dogmatic about the way in which a provision such as s 563A operates. Nonetheless, this Court has the obligation to state, and explain, why it chooses one interpretation rather than another. That interpretation, once adopted, becomes the correct and only interpretation to be applied - at least until the Parliament amends the provision or this Court changes its mind. In repeated decisions of the Court in recent years, where a statutory problem is proffered for resolution, the Court has insisted, with a very high degree of uniformity[154], that analysis must commence and finish with the text of the legislation[155]. The analysis must proceed, not only by reference to the words of the statutory provision but also by reference to the object and purpose of those words[156].
It follows that any presumed general subordination of shareholder claims on the assets of an insolvent company to the claims of general creditors, must give way to the true meaning of the legislation that actually governs the case. In this instance, that involves unpacking the meaning of s 563A of the Act and, in the end, nothing else. If any general presumptions do not accord with the legislation, properly construed, it is the legislation that must prevail for it expresses the parliamentary command. Statutory interpretation is ultimately, always, a text-based activity[157].
A nuanced command: Starting from this vantage point, it is evident that s 563A of the Act does not adopt a general policy (as it might have done) of "members come last"[158] in a corporate insolvency, as Gleeson CJ puts it in his reasons. To the contrary, the terms of s 563A of the Act, reflecting a very long legislative history, adopt a less absolute, and more nuanced criterion.
Thus, it is not every "debt" (which it was agreed[159] included a "claim" for unliquidated damages) owed by the company to a person who is a member of the company that is postponed. Instead, it is only such "debts" as are owed "in the person's capacity as a member of the company". This more limited ambit of postponement is clearly deliberate. Its exact boundaries may be disputable. But they are different from a simple postponement by reference to the fact that the claim is made by "a member of the company". The identity of the claimant is not the chosen criterion for postponement. Instead, the criterion is addressed to the character and incidents of the "debt", that is, the claim.
It would have been easy for the Parliament, if that had been its purpose, to make the identity of the claimant the relevant test for postponement. However, that course was not chosen. Instead, a more difficult and contestable criterion was enacted. It is the duty of courts to give effect to the criterion chosen; not some other criterion which a judge might consider to be more appropriate or more just to the respective claims of general creditors, on the one hand, and disappointed investors who have acquired the company's shares, on the other.
It is true that the application of the criterion, so explained, depends in every case on the facts and circumstances of the "debt" in question[160]. It is also true that these appeals have been conducted upon various assumptions which may, or may not, be borne out if ever a trial court comes to consider whether the respondent can establish a "debt" of the kind he asserts[161]. Nevertheless, it is proper to proceed upon those assumptions and upon the understanding of the facts and circumstances accepted in the Federal Court. When this is done, the focus for decision, so as to resolve the issues in the appeals, is upon the character of the "debt" allegedly owed to the respondent. That question is not decided by the simple fact that the "debt" is allegedly owed by the company to a person who is a "member of the company". This is why it is unhelpful, in construing s 563A, to distinguish between shares acquired by subscription, and those acquired by transfer[162].
Moreover, the alleged failure of the company to comply with duties of disclosure does not, without more, render the consequent "debt" one owed in the member's capacity as a member of the company. The disclosure requirements have been adopted by the Parliament for the protection of persons other than members of the company - including the investing public more generally. The requirements are of concern to corporate regulators, media, industry and university observers, macro-economists and bankers as well as employees and the general public having an interest in corporate disclosures. At the time of the alleged non-disclosures, the respondent was not a member of the company at all. In this sense, the disclosures were not then received in that capacity but as a consumer of corporate information and as an investor.
Examples of "debts": A third consideration is that s 563A of the Act gives specific examples of the type of "debt" which is "owed by a company to a person in the person's capacity as a member of the company". It is such "debts" that will be "postponed until all debts owed to, or claims made by, persons otherwise" have been satisfied. The examples are stated to be "dividends, profits or otherwise".
It is true that the phrase "or otherwise" in this formulation is expressed in language of complete generality. Standing alone, it would be broad enough to include a "debt" owed by a company pursuant to a claim for unliquidated damages for proof of misleading and deceptive conduct giving rise to remedies under the specified federal legislation. This point is not conclusive. However, to the extent that the Parliament has identified the kind of "debts" owed by a company to a person "as a member of the company", the specification of "dividends" and "profits" suggests that what is involved in the postponement are sums constituting the ordinary revenue (and possibly the capital) of the company and not claims of an extraordinary and exceptional kind for false and misleading conduct.
So far as the Parliament has given an explicit indication, by the specified examples, of the claims that will be postponed ("dividends, profits"), these are apt to exclude claims such as those made by the respondent. Therefore, if the phrase "or otherwise" is construed ejusdem generis with the immediately preceding words, unliquidated claims for damages for misleading and deceptive conduct do not fit comfortably with debts such as "dividends" and "profits" which normally inhere in the ordinary operation of the company as such.
Earlier judicial conclusions: Given that statutory language such as that now under scrutiny is often disputable, it is not without significance that, upon the problem presented by the present appeals, all of the judges of the Federal Court have reached the same conclusion, adversely to the appellants[163]. Similarly, when a like problem arose in England, under legislation bearing much similarity to that applicable in Australia, all of the judges in that country reached an identical conclusion[164]. In the face of this unanimity of judicial opinion, it is reasonable to infer that no deep or fundamental impediment to the conclusion argued for by the respondent has been perceived by the experienced decision-makers who have examined this issue.
In the United States of America, special legislation governs the point and directly subordinates claims made by shareholders arising out of the purchase of shares[165]. The hypothesis upon which that legislation is expressed, viewed against the absence of a similar provision in the Act and the contrasting text of s 563A, is also favourable to the respondent's arguments[166]. In the face of this understanding of a basic, and not atypical, issue of admitting and ranking of claims against insolvent companies, the general approach of the law in this and other similar jurisdictions is a reassurance that the conclusion arrived at by the Federal Court is not out of harmony with basic legal principle as it has been perceived elsewhere.
In matters of basic principle in the law of corporate insolvency it is increasingly important to consider the legal provisions applicable in the major countries with which Australia conducts its trade. Absent particular legislative variations, it will ordinarily be expected that basic legal problems will be addressed in basically similar ways[167]. In the present appeals, this consideration favours the respondent.
Uncopied precedents: Related to this last point is the fact that, had it been the purpose of the Parliament in Australia to adopt a general principle postponing, to the claims of general creditors, claims by disappointed shareholders against a company which becomes insolvent, it would have been relatively easy for that purpose to be given effect in the Act. One way would have been simply to delete from s 563A of the Act the words "a debt owed by a company to a person in the person's capacity as a member of the company, whether by way of dividends, profits or otherwise" and substitute "a debt owed by a company to a person who is a member of the company". This was not done.
Alternatively, the Parliament could have copied a form of drafting that followed the provisions of s510(b) of the Bankruptcy Code of the United States[168]. Claims by members of a company "for damages arising from the purchase or sale of … a security" might have been expressly identified and, as such, postponed to the claims of the general creditors. After all, the cases show that claims of this kind are not unusual. Shareholders have been making them for many years, certainly before the enactment of the present Act[169].
The problem presented by the present appeals was not therefore unknown when s 563A was included in the present Act. It would have been open to the drafters, and the Parliament, at the time of adopting s 563A, to deal expressly with the claims of disappointed shareholders if that had been its purpose. The occasion was not availed of. Instead, a more limited criterion for postponement was adopted.
Availability of amendment: The Act is a major statute of the Federal Parliament. The sources of the constitutional power to sustain it are large. They may possibly be greater than was formerly assumed[170]. The Act is constantly being amended and fine-tuned, to deal with problems that arise in its operation and perceived defects that require particular attention. Further, related aspects of corporate insolvency were the subject of the report of the Australian Law Reform Commission, referred to by Hayne J in his reasons[171].
If the Parliament concludes that the interpretation adopted by the Federal Court in these appeals, now confirmed by this Court, strikes the wrong balance between the rights of general creditors and the claims of disaffected shareholders, it can easily repair the defect by amending s 563A of the Act. Although some elements of bankruptcy law reform have not attracted timely attention from the Parliament[172], corporate insolvency seems to have gained at least some degree of priority. It should not therefore be assumed that the inclusion of shareholder claims, such as those of the respondent, with the debts of general creditors is contrary to the will of the Parliament or the result of a slip or oversight requiring a measure of judicial inventiveness and surgery. By sticking to a variation of a time‑honoured[173] statutory phrase, it can be assumed that the Act was intended to effect only a limited subordination of claims brought by people who happen to be shareholders.

[76]

It follows from these reasons that the preferable construction of s 563A of the Act is that adopted by Gleeson CJ[174]. In the result, the judges of the Federal Court came to the correct conclusion. The appeals to this Court should be dismissed with costs.
HAYNE J. A person who buys, or subscribes for, shares in a company, relying upon misleading or deceptive information from the company, or misled as to the company's worth by its failure to make disclosures required by law, may have a claim for damages against the company. That claim may be framed in the tort of deceit but, more probably than not, will now be framed as a claim under consumer protection provisions of the Trade Practices Act 1974 (Cth)[175] or investor protection provisions of the Corporations Act 2001 (Cth)[176] ("the 2001 Act") or the Australian Securities and Investments Commission Act 2001 (Cth)[177] ("the ASIC Act"). If the company comes under external administration before it has satisfied the shareholder's claim, and the company's affairs are to be administered as on a winding up, does the shareholder's claim rank with the claims of other creditors, or is it postponed? If, as is agreed to be the case here, the shares become worthless when the company goes into external administration, is the shareholder's claim one the circumstances giving rise to which occurred before "the relevant date" (fixed by the 2001 Act as the commencement of that administration)?
These questions are to be answered by reference to the applicable statutory regime: in particular, the provisions of Pt 5.6 of the 2001 Act. In construing those statutory provisions, it will be necessary to take account of their long legislative history. The answer to the questions that arise in this case do not depend upon any principle of judge‑made law. In particular, they do not depend upon the application, or the identification of the content, of what is sometimes called "the rule in Houldsworth's Case" (Houldsworth v City of Glasgow Bank[178]).
The central statutory provisions in issue are s 553 and s 563A of the 2001 Act. Section 553(1) provides:

[83]

In August 2004, the first respondent in both proceedings, Mr Margaretic, bought 20,000 fully paid ordinary shares in the capital of SOG. He made that purchase on the market conducted by the ASX. He was entered on the register of members of SOG soon after the purchase, but only a few days before administrators were appointed to the company. It is an agreed fact that upon the appointment of administrators "the value of the SOG shares purchased by Mr Margaretic became zero ... and has remained and will remain zero".
Mr Margaretic claims that, when he bought the shares, SOG was in breach of its obligations under s 674 of the 2001 Act. To explain what is meant by that claim it is necessary to say a little about the "continuous disclosure" requirements of the 2001 Act. A company, whose securities are included in the official list of a prescribed financial market such as the ASX and that is a "disclosing entity"[181], may be subject[182] to the continuous disclosure requirements of ss 674 and 675 of the 2001 Act. If a disclosing entity does not notify the market operator of information that is not generally available, but which a reasonable person would expect, if it were generally available, to have a material effect on the price or value of the securities[183], a person who has suffered, or is likely to suffer, loss or damage because of that failure, may obtain[184] orders against the company, and against any person who was involved in the contravention. The orders that may be made are orders that will compensate for, prevent or reduce, that loss or damage. They include an order to pay the person who suffered the loss or damage the amount of that loss or damage[185].
Mr Margaretic claims that he lost the whole of the amount he paid to buy the shares as a result of SOG's breach of the continuous disclosure provisions. Alternatively, he claims to recover that sum on the basis that SOG engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act, s 1041H of the 2001 Act and s 12DA of the ASIC Act, and that he is thus entitled to compensation under the relevant provisions[186] of those Acts.
It was an agreed fact that Mr Margaretic had made a claim against SOG for damages or compensation under statute, or at common law or in equity, in respect of fraud, misrepresentation, or other acts or omissions of SOG. It was further agreed that Mr Margaretic was intending to submit his claim for proof in the deed of company arrangement of SOG. There was evidence that other shareholders made or intended to make like claims.
The Deed Administrators applied to the Federal Court of Australia for a declaration that Mr Margaretic's claim is not provable in the deed of company arrangement or, alternatively, a declaration that payment of that claim will be postponed until all debts owed to, or claims made by, persons otherwise than in their capacity as members of SOG have been met. ING Investment Management LLC ("ING"), a company which was not a shareholder but was a creditor of SOG, was named as second respondent to that application. Mr Margaretic cross‑claimed for a declaration that he is a creditor of SOG and is entitled to all the rights of a creditor under Pt 5.3A of the 2001 Act, including the right to attend and vote at creditors' meetings and the right to receive information and circulars sent to creditors.
At first instance, Emmett J made a declaration[187] that, in respect of Mr Margaretic's claim, he is a creditor of SOG within the meaning of Pt 5.3A of the 2001 Act for such amount as the Administrators may admit to proof, or be ordered to admit to proof, and that he is entitled to all the rights of a creditor under that Part. His Honour further declared that the claim is not postponed until debts owed to, or claims made by, persons other than Mr Margaretic (or, it may be assumed, others in like case) have been satisfied.
Both SOG and ING appealed to the Full Court of the Federal Court. Those appeals were dismissed[188]. By special leave, both SOG and ING appeal to this Court. The only issue initially agitated in this Court was whether Mr Margaretic's claim is postponed to the claims of other creditors. That issue was argued on the footing that there was no question that Mr Margaretic's claim is a provable debt and that the relevant question was in what order does the claim rank for payment: with creditors of the company who are not shareholders, or after those creditors have been satisfied?
After the conclusion of oral argument the parties were asked to make submissions about whether Mr Margaretic's claim was a provable debt. In particular was it a claim the circumstances giving rise to which occurred before "the relevant date"?
As stated at the outset of these reasons the questions that must be considered in these matters are questions of statutory construction. They do not present any question of developing or applying judge‑made law. The task of construing both s 553 and s 563A requires attention to the context provided by other provisions of the 2001 Act, but it also requires an understanding of the legislative history that lies behind the particular provisions and the other provisions which together form its context. It is convenient to begin by examining that history.

[89]

Several aspects of the provisions of s 38(7) of the 1862 UK Act are noteworthy. First, there is where it fitted in the Act as a whole: as a qualification to the general obligation of past and present members to contribute to the assets of the company sufficient not only for payment of the debts and liabilities of the company but also for the "payment of such sums as may be required for the adjustment of the rights of the contributories amongst themselves". Of course, that liability could be limited. Section 38(4) limited the contribution required of a member of a company limited by shares to "the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member".
The second aspect of note about s 38(7) is that it spoke of a "sum due to any member of a company, in his character of a member". It said that no sum of that kind "shall be deemed to be a debt of the company, payable to such member in a case of competition between himself and any other creditor not being a member of the company". In modern terms it was a provision that is best understood, when applied in an insolvent winding up, as regulating the ability of a member to prove in the winding up rather than as a provision regulating priority of payment. If the company was insolvent there would inevitably be competition between the member and other creditors, and the sum due to a member "in his character of a member" was not to be deemed to be a debt. Only if the company was solvent could there be no competition of the kind identified and only then could there be any "final adjustment of the rights of the contributories amongst themselves".
The third matter to note is that the reference in s 38(7) to "profits" makes greater sense when it is recalled that, at the time of the 1862 UK Act, the corporation was understood as a company, association or partnership of persons, and when it is also recalled that early forms of articles of association sometimes obliged the directors to divide and distribute the profits of the company[189]. The reference is not to be seen only through the prism provided by judicial decisions about members' entitlements to dividends depending upon declaration[190] or statutory provisions[191] obliging a company to declare dividends only out of profits.
In 1981, when SOG was first incorporated, as a no liability company, the then applicable companies legislation, the Companies Act 1961 (WA) ("the 1961 WA Act"), contained a number of provisions evidently based on the 1862 UK Act. The Companies Acts of other States (the so‑called "Uniform Acts") contained generally similar provisions. In particular, s 218 of the 1961 WA Act (and equivalent sections in the other Uniform Acts) largely reproduced what was found in s 38 of the 1862 UK Act. But as SOG was a no liability company, s 218 would not have applied[192] had SOG then been wound up.
The several Companies Codes of the States, enacted in the early 1980s under what was known as the "co‑operative scheme", replaced the so‑called Uniform Acts and made provision in s 360 for the liability of contributories in terms not substantially different from the provisions of s 38 of the 1862 UK Act. There were some minor textual differences but they were of no moment.
By the time SOG converted from a no liability company to a company limited by shares, however, the relevant provisions regulating the winding up of such a company were to be found in the Corporations Law of Western Australia enacted in the late 1980s as part of what was described as the "national scheme" replacing the former "co‑operative scheme"[193]. The provisions of Pt 5.6 of the Corporations Law differed from the 1862 UK Act in several ways.
First, the content of s 38 of the 1862 UK Act was dealt with in a number of separate provisions. Section 515 prescribed the general liability of a contributory, but s 525 dealt with what the heading to the section described as "debts to a member". The text of s 525 was substantially the same as the text of s 38(7) of the 1862 UK Act[194], but it was not cast as one of several qualifications to a general imposition of liability on past and present members to contribute sufficient to meet both the debts of the company and the adjustment of rights between contributories.
This process of legislative disassembling of what had been s 38 of the 1862 UK Act, which was begun in the Corporations Law by dividing the provisions into separate sections, was continued by the Corporate Law Reform Act 1992 (Cth) ("the 1992 Act"). The 1992 Act made substantial alterations to the legislative provisions governing external administration of companies. It introduced administration and deed of company arrangement provisions of the kind to which SOG was later to resort. But for present purposes, it is the changes to the winding up provisions which are of most importance.
Section 10 of the Supreme Court of Judicature Act 1875 (UK) had provided that, in the winding up of any company under the 1862 UK Act or The Companies Act 1867 (UK) "whose assets may prove to be insufficient for the payment of its debts and liabilities and the costs of winding up, the same rules shall prevail and be observed ... as to debts and liabilities provable ... as may be in force for the time being under the Law of Bankruptcy". Australian company law followed this model. Thus, until the 1992 Act, subject to some qualifications that are presently irrelevant, the same rules were to be observed in the winding up of an insolvent company "with regard to the respective rights of secured and unsecured creditors and debts provable ... as are in force for the time being under the Bankruptcy Act 1966 [Cth], in relation to the estates of bankrupt persons"[195] (emphasis added).
It followed that claims of the kind encompassed by s 82(2) of the Bankruptcy Act 1966 and its legislative predecessors - "[d]emands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust" - were not provable in a winding up. As this Court held in Coventry v Charter Pacific Corporation Ltd[196], s 82(2) of the Bankruptcy Act has the consequence that a statutory claim for unliquidated damages, for misleading or deceptive conduct which induced the claimant to make a contract with a third party, is not a debt provable in bankruptcy. For the same reason, a claim for damages for fraudulent misrepresentation inducing the claimant to enter a contract with a third party is not provable in bankruptcy[197]. It follows that, under the provisions of the Corporations Law as they stood before the 1992 Act, the claims now made by Mr Margaretic would not have been admissible to proof in the winding up of SOG.
The 1992 Act severed the connection between the statutory identification of debts and claims admissible to proof in a winding up, and the classes of debts admissible to proof in bankruptcy. (Other connections with Bankruptcy Act provisions remained in the Corporations Law, particularly in relation to identifying the effect of winding up on other transactions[198].) The 1992 Act repealed s 553 and enacted a new s 553. The text of sub-s (1) of the new s 553 is set out earlier in these reasons.
The former rules excluding some claims for unliquidated damages from proof in a winding up were thus removed. What mattered under the new s 553 was whether "the circumstances giving rise to [the debt or claim in question] occurred before the relevant date". Section 553 of the 2001 Act specifies the debts and claims that are admissible to proof in a winding up in terms identical to those introduced into the Corporations Law by the 1992 Act. It will be necessary to return, at a later point in these reasons, to consider the application of s 553 of the 2001 Act.
The 1992 Act also repealed s 525, the provision derived from s 38(7) of the 1862 UK Act dealing with sums "due to a member in that capacity". The 1992 Act inserted two provisions concerning what it identified as "debt[s] owed by a company to a person in the person's capacity as a member of the company". First, s 553A provided that:

[92]

The two provisions appeared in separate subdivisions of Div 6 of Pt 5.6, the division which dealt with proof and ranking of claims in winding up, but it may be doubted that anything turns on that fact. For present purposes, what is to be noted is first, that s 553A assumed that a "debt owed by a company to a person in the person's capacity as a member of the company" could be admitted to proof. Section 553A provided only that payment of "all amounts that the person is liable to pay as a member of the company" was a condition for admission to proof. The section thus excluded the operation of the mutual credit and set‑off provisions of s 553C, which applied in the winding up of insolvent companies.
Secondly, the other provision introduced by the 1992 Act to deal with members' debts, s 563A, was evidently directed to the question of priority of payment of the debts with which it dealt. In terms, that section said nothing at all about what kinds of claim a member might make against the company of which that person was a member. That subject, of what debts or claims were to be admissible to proof, was dealt with comprehensively by s 553.
The provisions of the 1992 Act dealing with members' debts thus took a very different form from the provisions of s 38 of the 1862 UK Act. Members' debts were no longer dealt with as a qualification to an otherwise general obligation to contribute sufficient to meet the company's debts and liabilities, the costs and expenses of the winding up and the payment of sums required for the adjustment of the rights of the contributories amongst themselves. Against a background where former rules limiting the kinds of claims that were admissible to proof were removed, and the class of admissible claims thus extended, provision was made by the 1992 Act for the condition on which such a debt might be admitted to proof (the previous payment of sums due to the company in the capacity of member) and provision was also made for the priority to be afforded to the satisfaction of such debts. And finally, whereas s 38(7) of the 1862 UK Act (and all subsequent forms of Australian companies legislation down to the Corporations Law as it stood before the 1992 Act) had dealt with any sum due to any member in his character of a member, and provided that no sum of that kind "shall be deemed to be a debt of the company", the 1992 Act dealt with "[p]ayment of a debt owed by a company".
The Explanatory Memorandum for the Bill that became the 1992 Act asserted[199] that s 563A was intended to have the same effect as the then current s 525, and argument of the present matters proceeded on the footing that the 1992 Act should not be understood as failing to achieve that end. It is not necessary to examine the correctness of this assumption. In particular, it will not be necessary to consider whether some distinction could or should be drawn in the operation of s 563A according to whether a member has a claim for unliquidated damages against the company as distinct from a claim for a debt.
The 2001 Act followed the drafting pattern set by the 1992 Act, not only in relation to the prescription of the debts and claims admissible to proof in winding up, but also in relation to the separate provisions made in respect of a debt due to a person in that person's capacity as a member of the company. Thus, s 553(1) of the 2001 Act is in the same terms as the 1992 Act; ss 553A and 563A dealing with debts to members are also in the same terms as the 1992 Act.

[93]

Although not put directly in issue in the courts below, SOG's claims for declaratory orders, concerning the admissibility of Mr Margaretic's claim to proof, necessarily required consideration of whether the circumstances giving rise to that claim occurred before "the relevant date". Only claims meeting that criterion (whether the claims were present or future, certain or contingent, ascertained or sounding only in damages) were admissible to proof. In the administration of SOG, "the relevant date" was the day on which the directors appointed administrators to the company under Pt 5.3A[200]. It was on that day that the administration began.
It was the fact that administrators were appointed to SOG which was agreed to have rendered Mr Margaretic's shares in the company worthless. Until that event, the shares had been traded on the ASX. Mr Margaretic would now say that the market was ill‑informed but, whether or not that was so, when Mr Margaretic bought his shares, he paid the then prevailing market price for them. And there was a market for those shares up to the time when trading was suspended, upon the directors' resolving to appoint administrators.
At least some of the circumstances giving rise to Mr Margaretic's claim (in particular, the events and circumstances alleged to constitute SOG's failure to comply with the disclosure requirements of s 674 or alleged to constitute the misleading or deceptive conduct relied on) occurred before the appointment of administrators, and thus occurred before "the relevant date". But the loss or damage of which Mr Margaretic now complains was not apparent to him before the appointment of administrators. The extinction of value could be said to have arisen because of the administrators' appointment.
What is meant, in s 553, by "debts or claims the circumstances giving rise to which occurred before the relevant date"? How does that expression apply in the present matters? Those questions have not previously been considered by this Court, or by any Australian intermediate court[201].
In construing the temporal limit that is imposed by s 553, it is important to recognise the generality of other expressions used in s 553 in defining what debts and claims are to be admissible to proof. The section speaks of "all debts payable by, and all claims against, the company". It amplifies those expressions by the parenthetical reference: "present or future, certain or contingent, ascertained or sounding only in damages". If the words of the section were not wholly sufficient (as they are) to indicate an intention to define provable claims very widely, the Report of the Australian Law Reform Commission on the General Insolvency Inquiry ("the Harmer Report"), read with the Explanatory Memorandum for the Bill that became the 1992 Act, puts the point beyond any doubt. The Harmer Report[202] identified a basic aim of insolvency laws as being "to deal comprehensively with all of the debts and liabilities of the insolvent" and said that, "[i]n the case of a company, the aim is to deal with all the claims against a company so that its affairs can be fully wound up or so that it can resume trading" (emphasis added). The Harmer Report concluded[203] that "[t]he categories of claims which are admissible should be as wide as possible so that the financial affairs of the insolvent are dealt with comprehensively". Otherwise, as the Harmer Report pointed out[204], "if the creditors are unable to make their claims in the insolvency, they are unable to recover at all (unless they have a basis for action against either directors of the company or a guarantor of the company's debts or unless the winding up is stayed)". The Explanatory Memorandum[205] for the Bill that became the 1992 Act said that the reforms embodied in the new provisions of ss 553 to 553E "reflect[ed] the recommendations of the Harmer Report".
Is Mr Margaretic's claim one the circumstances giving rise to which occurred before the administration began? This temporal limit to s 553 is to be approached with these considerations of legislative intention well in view. What are the relevant "circumstances"?
It is important to begin by recognising that Mr Margaretic's claim is not a future or contingent[206] claim or debt. It is a present and, he would say, a certain claim. If not ascertained, and the better view may well be that his claim is now ascertained, it is a claim sounding in damages.
The claims which Mr Margaretic makes under the 2001 Act that are founded on a breach of the continuous disclosure requirements, and the claims he makes under that and other Acts which are founded on allegations of misleading or deceptive conduct, are claims for damages. But had Mr Margaretic known what he now says are the relevant facts before SOG appointed administrators (assuming for the purposes of argument that his allegations are true) he would have had complete causes of action against SOG for identical relief under the various statutory provisions upon which he now relies. And the claims he could then have made would not have been contingent or future claims; they would have been present claims for damages representing the difference between what he had outlaid in buying the shares and the true value of what he bought as determined by a properly informed market. The appointment of administrators so soon after Mr Margaretic bought his shares reveals that the shares he bought would have been judged by a properly informed market to be worthless when he bought them and accordingly, he suffered loss when he bought the shares[207]. Contrary to the submissions of ING, renouncing his shareholding, whether by selling the shares to a third party or rescinding the contract with the vendor, was not a necessary step in his claiming that loss.
It follows that, although the agreed facts demonstrate that the appointment of administrators reduced the value of Mr Margaretic's shares to zero, his claim is one the circumstances giving rise to which occurred before the administrators' appointment. Had the facts upon which Mr Margaretic now relies been known then, they would have been known to the whole market, not just him, and he would have had the same claim he now makes[208]. His knowledge of the relevant facts bears only upon whether he makes a claim; his knowledge of those facts does not bear upon whether he has a claim. His claim is of a kind that is within s 553 of the 2001 Act.

[96]

Webb Distributors concerned questions that had arisen in the winding up of three insolvent Victorian building societies. The litigation proceeded on the footing that the winding up of each of the societies was to be treated as though it were the voluntary winding up of a company under the then provisions of the Companies (Victoria) Code[212]. The liquidator of the three societies sought directions from the Supreme Court of Victoria about the treatment to be accorded in the winding up to persons who had subscribed for shares in the societies known as "non‑withdrawable investing shares". Some of those persons claimed that they had been tricked into subscribing for their shares, and they alleged that they had claims for damages for deceit and claims for damages and other relief under the Trade Practices Act[213]. The liquidator applied to the Supreme Court for directions upon a number of questions, of which two are now relevant: first, whether the shareholders' claims for unliquidated damages were provable in the winding up of the societies, and second, whether the shareholders were precluded from rescinding the contracts pursuant to which they purchased their shares and were "thereby precluded from maintaining an action or claim against the [societies] for damages"[214].
At first instance, Vincent J held[215] that the shareholders' claims were admissible to proof, that the shareholders were precluded from rescinding the contracts pursuant to which they acquired the shares, but that they were not precluded from maintaining actions against the societies for damages. On appeal, the Appeal Division of the Supreme Court held[216] that the claims of the shareholders were not admissible to proof, and that the shareholders were both precluded from rescinding the contracts pursuant to which they had acquired their shares and from maintaining the foreshadowed claims for damages against the societies. In Webb Distributors this Court dismissed an appeal against the orders of the Appeal Division.
It is of the first importance to recognise that Webb Distributors concerned whether the claims which the shareholders sought to make against the societies were admissible to proof in the winding up. The arguments that the parties in that litigation advanced in support of, or in opposition to, the admissibility of such claims to proof were based on what was said to be the "common law rule in Houldsworth v City of Glasgow Bank[217]" and whether that "rule" had received statutory recognition in the Companies (Victoria) Code. In particular, the arguments of the parties in Webb Distributors, both in this Court and in the courts below, laid heavy emphasis upon principles of maintenance of capital[218], and upon the issues presented by the second of the questions identified earlier, namely, whether the shareholders could rescind the contracts pursuant to which they became members and could sue the societies. The Court's reasons are to be understood as responding to these arguments of the parties.
The decision in Houldsworth concerned an unlimited company. It was decided before Salomon v Salomon & Co[219] revealed what is now accepted to be one of the axiomatic consequences of incorporation - the separate legal personalities of the corporation and its corporators. It has been said[220] to be a decision that is anomalous because it shows confusion between the corporation and its members[221]. It has been described as being "of legendary impenetrability"[222]. It is, as Tadgell J said in State of Victoria v Hodgson[223], a decision that "no doubt bears the stamp of its era". All this notwithstanding, the parties in Webb Distributors placed Houldsworth, not the applicable statutory provisions, at the forefront of their arguments.
There are at least two explanations for the approach that was taken in argument in Webb Distributors. First, the central question in the case was whether the shareholders had claims that could be proved in the winding up. The question was not, as here, what priority is a claim that is admissible to proof to be afforded in the application of the assets of the company in winding up. Secondly, decisions after Houldsworth, especially In re Addlestone Linoleum Co[224], explained Houldsworth as depending upon the application of s 38(7) of the 1862 UK Act. Claims by shareholders for damages for misrepresentation were said[225] to be claims in the character of members to recover a dividend in respect of the share of capital which they were bound to pay on a winding up. The claims were thus characterised as sums allegedly due to members, in their character of member, by way of dividends, and for that reason were not to be deemed to be debts of the company payable to those members in a case of competition between the members and other creditors not being members.
The conclusion that members' claims for damages for misrepresentations are to be excluded from proof on this basis assumed that the claims were otherwise of a kind that would be admissible to proof. Under the provisions then specifying the debts admissible to proof in a winding up[226], claims for unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust were excluded from proof as claims not admissible to proof in the bankruptcy of a natural person. Claims for unliquidated damages for deceit by the company causing a person to acquire shares from a third party were therefore excluded from proof, but claims for damages for deceit causing a person to subscribe for shares would not have been excluded. The latter form of claim would be a claim arising by reason of a contract or promise[227].
On this basis a line might have been drawn dividing claims for deceit made by subscribers for shares and claims for deceit made by those who acquired their shares by transfer. But no such line was drawn. Rather, the question, that appears to have been seen in Houldsworth as calling for examination, was whether a subscribing shareholder could retain the shares which had been issued while, at the same time, maintaining an action for damages to recover the damage suffered by reason of the subscription for shares.
This question was addressed in Houldsworth as though its answer depended wholly upon the general law of deceit and, in particular, what remedies were to be available for deceit where the property acquired in consequence of the deceit had not been given up or returned to the party making the fraudulent misrepresentation upon which the acquirer had relied. Not until In re Addlestone Linoleum Co was there any attempt to relate the conclusion reached in Houldsworth to the relevant provisions of the 1862 UK Act[228].
This course of decision, coupled with the various criticisms that have been levelled at the decision in Houldsworth, reveals the difficulties implicit in taking the state of judge-made law in the field as the starting point for consideration of issues of the kind considered in Webb Distributors. Yet that was the premise for the parties' arguments in that case and, not surprisingly, the Court's reasons reflect those arguments.
The Court held in Webb Distributors that the provisions of s 360 of the Companies (Victoria) Code (the provisions of the Code that were based on s 38 of the 1862 UK Act) precluded the shareholders from rescinding the contracts under which they acquired their shares and precluded them from maintaining an action for damages in respect of that acquisition. The proposition that a shareholder could not, either directly or indirectly, receive back any part of the amount contributed by that shareholder to the capital of the company was said to have received statutory recognition in that provision of the Code (s 360(1)(k)) which was the then equivalent of s 38(7) of the 1862 UK Act. It followed that the shareholders could not prove in the liquidation of the societies.
The conclusion reached in Webb Distributors concerned, and concerned only, the rights of a member who had subscribed for shares, as distinct from having acquired shares by contract from a person other than the company itself. Maintenance of capital may be relevant to a shareholder's entitlement to recover from the company amounts that the shareholder subscribed as capital, but it has no direct relevance to the recovery from the company of damages for loss occasioned by the making of a contract to acquire existing shares in the company from a third party. It has no direct relevance to that second kind of case because the shareholder does not seek the return of what was subscribed as capital when the shares were allotted. Whether, in the first kind of case, it is right to describe the claim as one which seeks the return of what was subscribed is a question that need not be answered here. Even if it were right, it would provide no reason for concluding that a shareholder like Mr Margaretic, who was not a subscriber, has no claim against the company under the consumer and investor protection provisions mentioned at the start of these reasons. Nor would it provide a reason for concluding that such a shareholder had no claim for deceit. Neither Webb Distributors nor Houldsworth established any common law "principle" that no shareholder, no matter how the shares were acquired, can have a claim of the kind now in issue against a company whose assets were to be administered as on a liquidation. The reasoning in those cases, because it was founded in important respects upon considerations of preservation of capital, can have no direct application when the plaintiff shareholder did not subscribe capital. But whether or not that is so, the asserted common law "principle" could not deny the operation of the relevant consumer protection and investor protection provisions. Finally, the conclusion reached in Webb Distributors, like the conclusion reached in Houldsworth, turned, in important respects, upon whether the shareholder could rescind the contract with the company for subscription for shares. None of these considerations is relevant to the present matters where there was no contract for the acquisition of shares made between the shareholder, Mr Margaretic, and the company, SOG.

[105]

A generally similar approach to the problem can be seen as underpinning the decision in In re New Chile Gold Mining Co[242]. There a claim by a former member, for damages suffered in consequence of the forfeiture of his shares without giving notice as required by the articles of association, was held[243] not to be a sum due to him in his character of a member but "on the contrary, due to him in the character of non‑member". It was said[244] that what was claimed was "not any sum which is payable to a member, but damages payable to him by reason of his having been deprived of the rights of a member by an irregular act on the part of the company in respect of which the contract, contained in the articles of association, entitles him to damages".
And the like approach can also be seen in In re Harlou Pty Ltd (In Liq)[245] where an employee of the company claimed damages for breach of the company's obligation, undertaken in his employment contract, to find a purchaser for shares issued to him when he took up employment, if that employment was terminated. As O'Bryan J said[246], the amount claimed was "not due to him in his character of a member at all. It is not because he is a shareholder that he is entitled to these damages, but it is because he has made a contract with the company ... which contract the company has broken" (emphasis added).
Because the question that must be answered is one of statutory construction, little or no assistance is to be had from considering the way in which other forms of statutory schemes, ordering the priorities for meeting an insolvent company's obligations, have been held to operate. And while it may be observed that each particular statutory scheme allocates the risks of insolvency between investors and creditors in a specific order, that is, in each case, an observation about the proper construction of the relevant statute, not an observation about some immutable policy. In particular, to say that "shareholders come last"[247] or that "stockholders seeking to recover their investments cannot be paid before provable creditor claims have been satisfied in full"[248] is no more than an observation about how the relevant statute has been, or should be, construed.
The expression now found in s 563A, "in the person's capacity as a member of the company" (like its legislative ancestor, "in his character of a member") must, of course, be given work to do in the provision. The expression defines (and confines) the particular kinds of obligations that are to be postponed. That is, it identifies the particular kinds of "debt owed by a company" (formerly, "sum due to any member of a company") to which particular consequences are attached. These consequences are now identified as postponement until all debts owed to, or claims made by, persons otherwise than as members of the company have been satisfied; they were formerly identified as not being "deemed to be a debt of the company, payable to such member in a case of competition between himself and any other creditor not being a member of the company". And once it is recognised that the provision, both in its present and in its historical form, singles out particular obligations for the attachment of the specified consequences, two observations may be made. First, the words "by way of dividends, profits or otherwise" can more readily be seen as examples of the kinds of obligation in question, rather than as words limiting or defining the obligations with which the provision deals. Secondly, the need to connect the obligation with membership is more apparent.
"Membership" of a company is a statutory concept. That is why the connection between obligation and membership that must be shown, if the obligation is to fall within s 563A, will find its ultimate foundation in the relevant legislation, now the 2001 Act. It is the legislation which defines the obligations owed by and to the members of a company.
That definition of obligations will often require resort to the company's constituent documents to flesh out the content of the relevant obligation. It is on that basis that reference is often made to "the statutory contract", but it is the statute (now s 140 of the 2001 Act) which gives those documents their particular legal effect. And in other cases, it will not be necessary to look beyond the four corners of the statute to conclude that the obligation which the member seeks to enforce is an obligation owed to members.
It will be noted that these conclusions about the operation of s 563A are not expressed in the terms used in Soden. In particular, it is to be observed that there is no reference to what Lord Browne‑Wilkinson, speaking for the House of Lords, called[249] "negative claims; claims based upon having paid money to the company under the statutory contract which the member says that he is entitled to have refunded by way of compensation for misrepresentation or breach of contract". These were said to be "claims necessarily made in his character as a member".
If money is paid to the company under the statutory contract, there may be cases in which it may be said that the obligation which it is then sought to enforce is one whose ultimate foundation is the legislative prescription of the rights of members. Whether that is so would depend entirely upon the facts and circumstances of the particular case and, very probably, would be much affected by the provisions of the company's constituent documents. But if money is paid to the company to create the relationship of member (as will be the case when a person subscribes for shares) the company's obligation to pay damages for fraudulent misrepresentation inducing that subscription, or to pay damages because loss was occasioned by the company's misleading or deceptive conduct, will not, in the absence of specific legislative provision to the contrary, be an obligation whose foundation can be found in the legislative prescription of the rights and duties of members. In this respect, absent specific legislation giving subscribing members particular remedies as members, no distinction is to be drawn between shareholders who complain that a company's deceit or misleading or deceptive conduct induced them to acquire shares in the company according to whether that acquisition was by subscription or transfer.
In the present case, the obligation which Mr Margaretic seeks to enforce is not an obligation which the 2001 Act creates in favour of a company's members. The obligation Mr Margaretic seeks to enforce, in so far as it is based in statutory causes of action, is rooted in the company's contravention of the prohibition against engaging in misleading or deceptive conduct and the company's liability to suffer an order for damages or other relief at the suit of any person who has suffered, or is likely to suffer, loss and damage as a result of the contravention. In so far as the claim is put forward in the tort of deceit, it is a claim that stands altogether apart from any obligation created by the 2001 Act and owed by the company to its members. Those claims are not claims "owed by a company to a person in the person's capacity as a member of the company". For these reasons, s 563A does not apply to the claim made by Mr Margaretic.
Each appeal should be dismissed with costs.
CALLINAN J. Mr Margaretic is not the first person, and will certainly not be the last to suffer the misfortune of buying shares in a terminally ailing gold mining company. Indeed, he has as fellow sufferers thousands of investors over the years who have chosen to invest in various kinds of joint enterprises of which, in modern times, companies are the most common, and which will almost always involve the divestment of personal management of the investment to others. Different people will have different subsidiary reasons to invest in this way: because they lack entrepreneurial flair and skills; because they perceive that a large concentration of capital can be more productive than a portion of it; because they are disabled in some way from managing investments; because they have insufficient money to fund a business; or perhaps because they wish to participate in a variety of businesses in the hope of insulating themselves from the vagaries of one business or market. All of these, and no doubt others, may operate on the minds of shareholders, but there can be no question that all are principally impelled by a wish to make as much money by way of income, capital gain, or both, as possible. No one investing in shares in a corporation could, however, be unaware that there will always be a risk of reverses, and that a shareholder alone, or indeed even a substantial body of shareholders, may not be able to manage or control that risk. Indeed, the risk itself may be uncontrollable by human agency, even the agency of a very cautious board of directors. Risk averse people, on the other hand, may choose to buy lower yielding government bonds, or, for example, shares in regulated utilities, understanding that by doing so they may forego a chance of greater financial rewards.
None of this is to suggest that directors and officers of corporations should not adhere to proper standards, or that there should not be as strict a regime as reasonably possible to ensure efficiency, diligence and probity, whilst at the same time not stifling ingenuity and enterprise.
There have been many corporations which have produced, and continue to produce, for their shareholders, much wealth. Sometimes, that result has been achieved by undertaking financially risky activities without in any way infringing any written or other rules of law. On other occasions, again without infringing any relevant law, the risk has materialized and the corporation has failed. Despite looking for the potential benefits had the corporation Sons of Gwalia Ltd ("SOG") succeeded[250], and enjoying the benefit of limited liability on its failure, Mr Margaretic, as a shareholder, now wants to be heard to say that he should be in exactly the same position to share equally in the remains of the corporation as its unpaid unsecured creditors, who, unlike shareholders, had the misfortune of being injured by the company simply by dealing with it in the entirely reasonable expectation that it could and would pay its debts to them, but not of course, any share of its profits if it were to make them.
The principal question in this case is whether Mr Margaretic can be heard to say this, and accordingly whether the decision of the Full Court of the Federal Court, which said he could, should be reversed by this Court. That question need only be answered if, as other members of the Court hold, another and less difficult question, whether Mr Margaretic should be entitled to claim as a creditor at all in the administration, is answerable in the affirmative. As to that, because I agree with the answer given by Hayne J, I need only deal in detail with the more difficult question.
The course of proceedings so far, and the issues, are described in the reasons for judgment of other members of the Court. It may be useful however to set out a short summary of Mr Margaretic's claim[251]:

[178]

Standing to apply for an order is the subject of s 234, which provides that an application may be made by a member, a person who has been removed from a register of members because of a selective reduction, a person who has ceased to be a member, a transmitee by will or operation of law of a share, or a person whom the regulator, ASIC thinks appropriate, but not a creditor. Interestingly, s 234 is another section which refers to a "member in their capacity as a member" and a related phrase, a "member in a capacity other than as a member". Expressions used more than once in legislation should be given the same meaning throughout in most, if not all, conceivable circumstances. It is possible however to give the expression "member in their capacity as a member" the meaning advanced by either side as to the like phrase in 563A without doing injury to either s 234 or s 563A.
Another important right that members now enjoy under the Act is to bring or intervene in proceedings on behalf of a company. Until the introduction of provision for this, the rule in Foss v Harbottle[260] operated, that only the company could be a proper plaintiff in respect of wrongs done to it, members having no personal rights to interfere in the management of the company unless they did so in general meeting, and even then subject to a rule that they not attempt to invalidate otherwise apparently valid actions of directors before a resolution at such a meeting. Subject to some presently non-relevant qualifications, a member, a former member, or a person entitled to be registered as a member, has a right to apply to intervene under s 236 of the Act where they do so with the leave of the court under s 237. That section also provides that an officer or a former officer of the company, with leave, might have the same right, but it can be seen that, in general, the rights conferred are primarily intended as rights of members.
Part 2F.2 is concerned with "class rights". It provides[261] that if members of a class do not agree to a variation or cancellation of their rights, the holders of no fewer than 10 per cent of the votes in the class may apply to the court to set aside a variation or cancellation of their rights.
Earlier I referred to limited liability. Provision for that is made by ss 515 and 516 of the Act. Section 515 provides:

[184]

History

The history of the Act has been traced by Hayne J[264] and accordingly little of it needs repetition by me. I would make some observations about it, however. I do not think that anything turns upon the relocation of s 563A in a different part of the Act from the location of its precursors in the Acts in which they appeared. And whilst it is certainly true that Salomon v Salomon & Co Ltd[265] did put beyond all dispute the proposition that a company was a different and separate personality from the members of it, the attainment of limited liability had been an object of legislators and the commercial community long before that case. The United Kingdom 1844 Statute 7 & 8 Vict c 111 did not achieve it, but did lay a foundation for it by drawing, as it did, a distinction between joint stock companies and private partnerships, incorporation by registration rather than by legislation or charter, and establishment of a registrar of companies with whom companies' constitutions and returns were filed so as to become accessible to the public. That Act did, however, provide that the liability of members should cease three years after transfer of their shares and that creditors must proceed first against the assets of the company[266].
According to Gower's Principles of Modern Company Law, public opinion hardened in favour of the extension of limited liability, "particularly when the slump of 1845-1848 drew poignant attention to the consequences of its absence"[267]. The Joint Stock Companies Act 1856 (UK) provided that a company of limited liability could be registered and could operate if seven or more persons signed and registered a memorandum of association. The use of the word "limited" was required and was regarded as a clear indication of any risk that might attach to dealing with this new form of legal personality. Perhaps the better way to regard Salomon v Salomon & Co Ltd is not as establishing unarguably merely "limited liability", but, as Gower puts it[268], as bringing home its "implications" to the courts. As I said in New South Wales v Commonwealth[269]:

[198]

Relevant cases

The history includes the relevant case law. Other members of the Court have discussed that. With respect, I do not entirely agree, however, with the complexion that has been placed upon some of it by the majority. It is said that one factor which influenced, either unnecessarily or excessively, certainly for modern purposes, the courts in Houldsworth v City of Glasgow Bank[277], In re Addlestone Linoleum Company[278] and latterly in Webb Distributors (Aust) Pty Ltd v Victoria[279] was a preoccupation with the amount and maintenance of paid up capital[280]. It is also suggested that "assets and liabilities" are matters of more significance to creditors than paid up capital[281], and that paid up capital is "wholly irrelevant"[282] to a purchaser of fully paid shares on the market. The assets and liabilities of a company will, it is true, be matters of the greatest concern both to creditors and acquirers of shares. But what, it may be asked, is the connexion between those two, other than that the latter is the product at any time of the use of the other, the paid up capital of the company? The difference between liabilities and assets, members' equity, is the product of, and stands in place of, and assumes the importance of paid up capital, and is the real measure of the worth of the company. It is unnecessary to go into the detail of the provisions for it here, but the law, that is the Act, continues to make elaborate provision for, and limits the circumstances, being circumstances in general of clear solvency only, in which funds may be returned to shareholders, and the company's worth reduced, that is, its paid up capital, sometimes enlarged by capitalization of profits[283], may be returned or reduced[284]. For these reasons, I cannot dismiss as irrelevant the discussion of the courts on paid and unpaid shares in past cases which were concerned primarily with questions relating to access by members to capital, and returns of capital to members of a company. Whatever criticisms may be made of Houldsworth, this Court accepted in Webb that it did stand for a proposition which the House of Lords had distilled from the provisions of the Companies Act 1862 (UK), and that it had "received statutory recognition in s 360(1) of the [Victorian Companies] Code"[285]. It is true, as the Chief Justice points out[286], that there is a chronological disconformity contained in this statement by some members of this Court in Webb. But even so, the fact remains that Houldsworth has stood as the law, as to the effect of relevant parts of companies legislation in a relevantly unchanged form from 1880. As McHugh J said in Webb[287], it must have been applied hundreds of times. And as the majority put it in Webb[288]:

[205]

Coherence in the law

It is desirable that an Act be read so as to maintain coherence in the law and promote fairness, if a construction to achieve those ends is reasonably available. The construction contended for by Mr Margaretic does not in my opinion achieve those ends, indeed the contrary.
Purchasers in Mr Margaretic's position are not the only ones who have suffered by reason of the failure to disclose by the company. In addition to creditors, all of the shareholders at the time of the placing of SOG in administration have a fair claim to say that they have been equally wronged. Most could fairly and honestly say that they decided to hold on to their shares by, and on the faith of the deceptive conduct alleged. In his Honour's reasons for judgment, Hayne J says[293] that the measure of Mr Margaretic's damages is the difference between the amount that he paid for his shares and the value of the shares on a properly informed market, which is nil. On that analysis, a longer standing shareholder than Mr Margaretic who has held on to his shares might arguably fail because he could not establish any loss. In a properly informed market his shares would also have been valueless: nobody would have wanted to have had any part of them. The consequence of all of that could be a very unfair and incoherent result, although one not stemming directly from the priority provisions of s 563A. It would give only recent purchasers such as Mr Margaretic a very large advantage over other equally wronged, longer term members. It may however be possible to devise a different basis or measure of claim for those members who had held the shares for some time before administration (or liquidation) by resort to the provisions of the Act to which I have referred, and perhaps s 87 of the TPA, which allow courts greater flexibility in framing relief than at common law for deceit or negligent misstatement. Assume that to be so: the result produced could still be quite unfair to creditors for it would mean that most, perhaps all, of the shareholders at the time of the administration would have much the same claim for compensation as Mr Margaretic, thereby placing all, or practically all of the shareholders at that time in competition with the ordinary creditors, a consequence which can be seen to flow from the ranking provisions of s 563A. It is not difficult to imagine a situation in which claims of a large body of shareholders, perhaps most of them, would dilute the creditors' rights to less than a trickle.
This tendency, of unfairness and legal incoherence, of the construction contended for by Mr Margaretic provides further reason therefore to reject it.

[206]

Other matters and conclusion

The language of s 563A has, as the Chief Justice in his reasons points out[294], a long history. In my view, that language could and would have been changed if it were intended that creditors should be left to scramble, in competition with the shareholders who paid too much for their shares, for the remains of a company. It is no answer to SOG's arguments that Mr Margaretic's claim is said not to be based on the amount of capital paid up on the shares which he purchased but rather upon the market price of them. The market price of the shares depended entirely upon the wrongly induced perception that the paid up capital of the company had produced a position in which the market price of the shares was their true value. SOG's capital structure in its current form did therefore have the most direct bearing on the apparent market value of the shares. The fact that Mr Margaretic needed to plead that he was a member of the company may not be decisively against him, but it is a fact that cannot be dismissed as irrelevant. In that sense, membership of the company does have essentiality to his claim. Even if he could have found a buyer for his shares in the event, for example, of his wishing to crystallize a loss for tax purposes, he would still have had to have pleaded that he had been a member of the company. So too, an attempt to become a "member of the company" by acquiring shares not as yet registered in his name, would need to be pleaded and would have been a fact essential to a claim of the kind now made by Mr Margaretic. It is unnecessary for me here to form a concluded view about the correctness of SOG's concession, that s 563A has a relevant temporal aspect. Suffice to say, I doubt whether that is so, or so in all relevant circumstances[295].
In conclusion then, having regard to the scope and objects of the Act, the language used in s 563A itself, the context in which that section appears, the history of the Act, the relevant case law, and the desirability of maintaining coherence and fairness in the law, the construction to be preferred is that advanced by SOG. I would accordingly make the following orders:

[212]

HEYDON J. I agree with the orders proposed by Hayne J.
Mr Margaretic's claim falls within the expression in s 553 "debts or claims the circumstances giving rise to which occurred before the relevant date" for the reasons given by Hayne J[296].
Mr Margaretic's claim is not a claim for payment of "a debt owed by a company to a person in [his] capacity as a member of the company" within the meaning of s 563A for the reasons given by Hayne J[297].
So far as Webb Distributors (Aust) Pty Ltd v Victoria[298] and Houldsworth v City of Glasgow Bank[299] were relied on by SOG and ING in relation to the construction of s 563A, it is not necessary to say more about them than that which Hayne J has said in explaining why they are not determinative[300]. Further, the issue on which the Webb case was decided was whether a claim was provable, whereas the issue on which the SOG appeal is to be decided in relation to s 563A turns on whether a provable claim ranks after or alongside the claims of general creditors.
So far as those cases were relied on by ING in its written submissions in chief in support of a contention that Mr Margaretic's claim was not provable, by reason of a principle which, it contended, had been stated in Houldsworth's case and approved by this Court in the Webb case, it is not necessary to deal with them. That is because both at the start and at the close of his final address, counsel for ING abandoned that contention. If that contention was not abandoned, I agree with Hayne J's reasons for rejecting it[301].
CRENNAN J. I have had the advantage of reading in draft form the reasons of each of Gleeson CJ and Hayne J. I agree with their conclusions and with their reasons. I have also had the advantage of reading in draft form the additional reasons of Gummow J and I agree generally with his Honour's reasons and analysis of what was referred to in argument as a "principle" said to be derived from Houldsworth v City of Glasgow Bank[302].
Prior to the Companies Act 1862 (UK) ("the 1862 Act") creditors were not entitled to apply for an order for winding up, but they were not restricted from pursuing legal remedies against individual shareholders[303]. In the same period, shareholders induced to take shares by fraud, imputable to the company, were entitled to repudiate their shares, were not liable to be contributories in a winding up[304] and could, as creditors, pursue remedies against individual shareholders. These possibilities did not continue after the consolidation and reforms[305] encapsulated in s 38 of the 1862 Act ("s 38").
It was decided in Oakes v Turquand and Harding[306] that a shareholder induced to take shares by fraud, imputable to the company, giving rights to rescission and indemnity against the company could not avoid being on the list of contributories by exercising those rights once a winding up had commenced. This was because s 38 imposed a "statutable liability"[307] on shareholders in respect of creditors, who were not able to pursue remedies against individual shareholders under the 1862 Act. In Tennent v City of Glasgow Bank[308], Earl Cairns LC considered that the rationale of Oakes v Turquand applied as soon as a company became insolvent, and before a winding up, because of the assumption at that point of "new liabilities" to creditors[309].
In Houldsworth's Case, Houldsworth accepted that winding up precluded rescission, as decided in Oakes v Turquand. He then unsuccessfully sought damages in respect of an inducement by fraud to take up shares, such damages to be paid after the creditors were paid, either from the company's surplus or by solvent co-contributories. It is not clear why Earl Cairns LC decided that £4000 paid by Houldsworth for the stock could not form part of "the debts and liabilities of the company"[310]. However, it is clear at several points that when Earl Cairns LC speaks of Houldsworth's claim as "inconsistent with the contract into which he has entered"[311], he is referring to Houldsworth's contract "as between himself and those with whom he becomes a partner"[312], ie other shareholders. It is also clear that Lord Selborne's reasons concerned the "contract between the shareholders"[313] and Lord Selborne regarded the action as being, in truth, an action against co-contributories[314], innocent of any fraud.
Three months after Houldsworth's Case was decided, Burgess's Case[315] came before Sir George Jessel MR. There, assets in the hands of a liquidator were sufficient to pay creditors and the costs of the winding up. In resisting being listed by the liquidator as a contributory, Burgess contended that as all creditors' claims had been met, he was entitled to rescind as against other contributories, notwithstanding the winding up order. The liquidator met that contention with the submission that the decision in Houldsworth's Case barred an action for damages in respect of fraud inducing the purchase of shares, to which the Master of the Rolls responded thus[316]:

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