SECURITIES LITIGATION: SHAREHOLDER CLAIMS POST COVID-19
Prior to the coronavirus (COVID-19) crisis, the UK was already seeing a rise in claims brought by shareholders against companies and directors.
In particular, there have been a number of high-profile class actions brought by shareholders in UK publicly listed companies, based on claims that the company and its directors made false and misleading statements to shareholders to induce them to invest in the company or to approve substantial transactions which went on to have an adverse impact on share price.
The UK courts have accommodated the bringing of class actions (whether pursuant to a group litigation order or otherwise) and there are now well established claimant law firms, backed by third-party funders, that can quickly mobilise to present claim opportunities to shareholders on an apparent ‘risk free’ basis. Securities litigation has been big business in the US for many years and the UK market is starting to follow suit.
The COVID-19 crisis is likely to see the trend in shareholder claims continue. In any significant economic downturn, share prices are likely to drop which may cause more recent investors to question whether the information they received at the time of acquiring shares was accurate. Economic downturns can lead to the discovery of inappropriate corporate conduct, for example in terms of overstating financial performance. A corporate scandal within a listed company is highly likely to result in a share price drop and may provide a basis for a claim by shareholders. Coming out of the crisis, companies may be looking to raise funds via rights issues which brings with it the risk of claims based on misleading statements made to shareholders.
Jan-Mar 2021 issue
CMS Cameron McKenna Nabarro Olswang LLP