Corporate Finance Soundbite: Mergerspresso

Simon:

Welcome to Mergerspresso, where today we’re talking about shareholder claims against listed companies in the time that it takes to make you coffee. I’m Simon Wood. I’m joined by one of AG’s leading litigators in this area, Sivan Daniels and Emily Tilden-Smith. Sivan, Emily – over to you.

Sivan:

Thanks Simon. Over the last decade, there’s been a surge in claims made by shareholders for losses suffered by share price drops caused by a company’s false or misleading public statements. These claims focus on the accuracy and timing of public disclosures and crucially, who at the relevant PLC knew what and when. The momentum is building, especially following some high-profile regulatory incidents that led to share price drops and losses for shareholders.

Simon:

And Emily the numbers involved are significant, claims can range from hundreds of million to billions of pounds affecting companies across many sectors.

Emily:

That’s right Simon - as well as the financial exposure for the company there is also a personal liability risk for the directors, and their knowledge of any alleged misstatements is also a key focus in the corporate proceedings. Over the past decade more than 15 claims have been issued, but none have reached trial except for one unusual case. This lack of case law means there is still uncertainty in the law, which has provided fertile ground for settlements. We are also seeing a move towards institutional investors self-funding these actions, rather than relying on external litigation funding and being tied to the strategy of a wider group of claimants. 

Simon:

And are you seeing any other trends in the market?

Sivan:

Yes, there type of claims are increasingly being presented to institutional investors as ESG claims, with a particular emphasis on the 'G' in ESG being governance. But in most cases the company has already faced regulatory proceedings and paid substantial fines for the underlying misconduct. The claims themselves tend to follow on after those regulatory proceedings with shareholders leveraging those findings to support their case. And we're expected to see, what could be regarded as proper ESG stock drop claims, in the future. PLCs are increasingly making statements about their green credentials in annual reports and if these statements turn out to be misleading companies could face liability for shareholder losses tied to those disclosures shareholders have relied upon.

Simon:

And the landscape is shifting fast so, other than speaking to you Emily – what’s the best course of action for a listed board to take?

Emily:

So, PLCs are wise to focus on developing a holistic and consistent strategy to minimise activist risks in corporate wrongdoing. Which pulls together investor, regulatory and follow on litigation strategies - this includes assessing risks early in the context of a pending M&A transaction. Shareholder activism is on the rise, and this is a lever we are increasingly seeing pulled to recover value for shareholders.

Simon:

Thank you Emily, thank you Sivan – thanks for joining Mergerspresso. For those listening, please do get in touch if you’d like to know more; Mergerspresso will be back in a couple of weeks. Catch you next time.