Northern Rock’s smaller shareholders, who are hoping to sue the Government over their lost shareholdings, face costs of up to £50 each before any action can get underway.
Edwin Coe partner David Greene, who represents around 7,000 of the bank’s smaller shareholders, said a cash injection is needed to round up enough shareholders to bring a lawsuit.
When shares in the troubled mortgage lender ceased trading last Monday (18 February) they were held by around 150,000 private shareholders, as well as high-profile institutional investors such as hedge funds RAB Capital and SRM. Greene, who in 2001 represented 50,000 Railtrack shareholders seeking compensation after the company was put into administration, said the Northern Rock group he represents would need to number around 30,000 before any legal action would be representative.
“We’re organising funding at the moment,” he said. “In Railtrack we had 50,000 clients and they contributed £50 each. The money is for organisational requirements and for outgoings on items such as the administrationof websites.”
Greene pointed out that it “costs money to raise money”, adding that upfront cash is needed to contact all 150,000 shareholders in the first place. Shares in Northern Rock closed at 90p on the last day of trading before they were suspended and it is expected that shareholders will receive a fraction of this, if anything, in compensation.
The small shareholders hope to take action on the grounds that the balance between the public interest and their property rights was determined unfairly by the Government, which, said Greene, could constitute a breach of their human rights.
However, Andrew Head, a partner at Forsters, said that, as the shares would have been worthless if the Government had not stepped in to keep Northern Rock solvent, such action is unlikely to succeed.