RBS payout may trigger other group litigations

RBS £200m payout could lead to similar group litigation brought by small investors in other companies.

You may recall that investors alleged that RBS had misled them over the state of its health before a £12bn rights issue in spring 2008. Most of that investment was wiped out soon after, when RBS required a £45.5bn taxpayer-backed bailout.

Thousands of retail investors and institutions worked together to bring a court case that was due to start in May. But over the previous few months, a number of institutions and other investors — representing nearly 90 percent of claims by value — agreed to a settlement worth between 41p and 43.2p per share.

The deal struck in early June with thousands of retail investors at double that price is a sign that individuals can successfully pursue a group litigation case. So expect similar action in the future.

Other group litigation cases with similarities to RBS are already in the pipeline. A case against Lloyds Banking Group, which was only freed from the shackles of government ownership last month, is due to commence in October. Again, it is being brought by thousands of investors who complain about the bank’s rescue of the beleaguered HBOS in 2008. Annoyingly the action group is no longer open to new members so I cannot join it! I found out too late.

Investors allege they lost about £400m as a result of the deal and that HBOS shares were “valueless” at the time. They claim they were misled into approving the HBOS merger as key information over the true financial health of the bank was withheld.

Stephen Rosen, a partner at law firm Collyer Bristow was quoted as saying “there are litigation funders who are actively looking to fund shareholders’ actions.”

With more litigation funding readily available, the success of the RBS investors could inspire more small shareholders to take action.

Cliff Weight

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2 thoughts on “RBS payout may trigger other group litigations

  1. This is indeed a very significant step forward in that it demonstrates that it is practical to pursue such claims against companies and their directors by the use of litigation funding, albeit that the lawyers and funders may end up with a very significant proportion of any claim settlement (over 40% perhaps). In addition it has to be borne in mind that litigation funders require claims to be large in size to make it worth their while which means that firstly it is necessary to get the support of institutional investors and secondly it’s unlikely to help with the vast majority of cases of errant directors in smaller companies such as those listed on AIM. It also requires a very high degree of persistence and many years to reach a conclusion.

    Although the outcome in this case is to be applauded, this area of law and litigation still needs substantial reform.

  2. ShareSoc will examine other potential cases where shareholders have been misled, other otherwise illegally mistreated and investigate opportunities for redress via this route. However, matters would be much improved if regulators fulfilled their role and acted in such cases, instead of leaving it to individual investors with scant resources to seek justice.

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