Compensating defrauded shareholders in insolvency: is parity the answer?

Abstract

This paper studies recent developments in Australian and US law permitting compensation for defrauded investors. For insolvent companies, these developments have drawn attention to the possibility of investor claims being satisfied on parity with the claims of ordinary unsecured creditors. This paper proposes that such a shift may be justified on the basis of a modern perspective of the principles underpinning corporate law. However, account must also be taken of the more practical implications which may hinder a widespread acceptance of parity.

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