Small shareholders of crippled bank Northern Rock are to take the Treasury to the High Court after it was revealed that Government lawyers had rejected their request for compensation. The UK Shareholders Association (UKSA) said it would submit an application to the Administrative Court, part of the High Court, for a judicial review.
UKSA director, Roger Lawson said, “The issues are so significant and there’s obviously a very substantial public interest in this, so we’re hopeful the application will be approved.”
After being supported for months by loans from the Bank of England, Northern Rock became nationalised. Legislation was brought in at the time stating that compensation payouts for shareholders were to be based on the notion that the bank was unable to continue to operate without public support.
With the bank facing a debt of £24 billion, shares were deemed to be worthless, but shareholders argued that Northern Rock’s £110 billion worth of mortgage assets should have given the company a net asset value of around 320p per share.
The UKSA who have raised £60,000 from members to help their legal fight, have called for the legislation to be amended so shareholders can receive a higher compensation payout.
The UKSA are to be advised by David Greene, of Edwin Coe solicitors.
It is believed that the Treasury had also dismissed compensation claims from two of Northern Rock’s biggest institutional shareholders, SRM Global and RAB Capital.
RAB Capital submitted their initial payout claim after the UKSA, but was undecided as to whether to seek a judicial review as well. They, along with SRM Global are thought to have chosen to monitor the situation involving small shareholders before deciding on their next move.
All the firms involved were left apprehensive about taking the Government on in court, fearing that it could become a costly exercise and result in a long drawn out legal battle.
A major Northern Rock shareholder said, “It’s one thing putting in a pre-action letter to the Treasury, but it is quite another embarking on what could be, considering the way lawyers work, a two year legal campaign.”
Sources close to one of the Newcastle based bank’s larger City investor’s, Legal and General, said that their fund manager was thinking about declaring itself as an ’interested party’, meaning they would become involved in the case if it went to court, but would not bring a case itself.
The Treasury are believed to have hired City solicitors, Slaughter and May to offer them legal advice, led by the firms partner Charles Randell. They are also believed to have asked Lord Grabiner, QC, to represent them in court. The Labour law lord who is head of One Essex Court, the leading commercial chamber in the country, has been entrusted with the task of defending the Treasury should the banks case be make it to court.
RAB Capital is to rely on legal advice from another City solicitors firm, Nabarro, with SRM Global hiring White & Case, the Anglo-American legal giant for their guidance. SRM Global is also believed to have enlisted the help of David Pannick, QC, who is a leading human rights advocate, to join their legal team.
