Billions of dollars in payouts have been made in US securities class actions – claims made by shareholders against issuers for losses suffered as a result a stock drop linked to a false or misleading public statement.
Similar claims are gaining momentum against UK PLCs. They are focused on the quality and timeliness of public disclosures and, if they were inaccurate or improperly delayed, who within the PLC knew about this and when.
These claims are increasingly getting traction as a result of their presentation as ESG claims (with a focus on the ‘G’overnance), and as a means of holding public companies and their boards to account. This is following a series of high-profile regulatory issues for UK PLCs linked to share price drops over the last decade. However, in most cases the corporate has already been reprimanded by regulators for any wrongdoing associated with the share price drop and has paid substantial fines in connection with any alleged underlying misconduct.
Companies across a wide array of sectors have been impacted so far and the value of the claims can be significant – ranging from hundreds of millions to billions of pounds. Usually these claims follow on from regulatory proceedings against the PLC regarding alleged misconduct where claimant shareholders later seek to leverage regulatory findings.
It is not unsurprising that these claims have attracted the attention of UK PLCs and their boards. In particular, there is a risk of personal liability for directors, and the knowledge of the board of the alleged misstatement is a key area of focus.
No claim under the relevant provisions has reached trial (aside from one which was unusual in its formulation). Therefore, there remains a level of uncertainty in the law. Limited caselaw has provided a fertile ground for settlement deals.
More than 15 claims against UK PLCs have been issued over the last decade. We are also seeing signs of a move in the market towards institutional investors self-funding their own claims, rather than relying on litigation funding and being tied to the strategy of a wider group of claimants.
There is, however, a narrow slice of these types of shareholder claims that can properly be regarded as ESG claims with a focus on the ‘E’nvironment’ – which is where a significant degree of investor sentiment sits. UK PLCs are increasingly making claims about their green credentials in their annual reports and published materials. If these statements later prove to be misleading or inaccurate, the company risks attracting liability for losses suffered by its shareholders as a result of an associated drop in share price. Green impact investors may find it easier to prove reliance on the relevant statements (which is a hurdle an affected investor must overcome). We expect to see these claims come to market soon.
Shareholder activism is on the rise. Stock drop claims are gathering momentum, and are increasingly advertised as ‘ESG’ claims. UK PLCs are wise to focus on developing a holistic and consistent strategy to minimise activist risk in perceived corporate wrongdoing. This includes assessing risk early in the context of a pending M&A transaction.
