Guides & Advice

Securities Litigation in England – 10 years on from Morrison AND during a pandemic

Published: 4th June 2020
Area: Litigation & Dispute Resolution

Securities Litigation in England – 10 years on from Morrison AND during a pandemic

As a result of COVID-19, companies are being forced to respond to a variety of threat vectors such as cash-flow problems, insurance issues and regulatory restrictions on their business.

Another possible threat, which might not materialise for some time, is the threat of securities litigation. While the prediction by many that the US Supreme Court decision in the case of Morrison v National Australia Bank Ltd would kick start securities litigation in the Courts of England and Wales, has not come true, this does not mean it is not an ever-present threat

Some experts believe that the COVID-19 pandemic might see investors seeking to challenge snap decisions made by companies in the fast moving months of March, April and May 2020. Given that these claims do not need to be filed immediately, both companies and those who might have been prejudiced by a company’s decision should be aware of any action that could lead to a claim and protect their interests accordingly.

What are the key provisions in English law that could lead to this type of litigation?

Along with the common-law claims available, the two key statutory provisions for bringing securities claims in England and Wales are s.90 and s.90A of the Financial Services and Market Act 2000 (FSMA 2000).

In effect, these two provisions impose liability on a company or the people responsible for the content of the securities or information around them if the content or information is misleading. They allow investors who have purchased the securities to claim compensation for any losses they suffer as a result of that information, or the content of the prospectus if it is untrue or misleading.

Taken together the above provisions provide two broadly drafted statutory provisions which could enable claimants to bring claims against a range of issuers of securities. And it is very possible these potential issues could emerge for a number of investors as a result of actions taking by companies during the Covid-19 pandemic.

Possible breaches and what you can do to mitigate 

  • Companies might find themselves in breach s.90 when attempting to raise cash to deal with the financial downturn. While most companies are relying on the various forms of government support, those who decide to issue securities might accidentally breach the s.90 in these fast moving times.
  • A failure to update investors might also lead to breaches of s.90A, especially if information is published which could affect the value of securities, such as when a company receives government lending or relies on new accounting ideas, such as the recently publicized “EBITDAC”.
  • Furthermore, companies which have produced forward-looking guidance might want to withdraw that guidance and update it if they have not done so already. Purchasers or holders of securities should carefully assess when the latest guidance was published and ensure that it has not since been overtaken by subsequent events.

Despite some high-profile claims arising out of the 2008 financial crisis, these provisions have not yet been properly tested in court. Even so, companies should also pay particular attention to any possible liabilities they might face and equally claimants should be aware of the redress they might have when the dust finally starts to settle.

It is likely that the COVID-19 pandemic will result in a number of class actions around these issues. Both the issuers of securities and those who might have claims should be aware of these potential actions. Claimants might wish to join any possible class, or pursue litigation independently. Similarly, issuers might want to keep abreast as these class actions develop to see how the courts are responding so that they can make provision for similar litigation or settlement.

For further information in relation to securities litigation please contact Max Rossiter or David Vaughan or another member of our commercial disputes team.

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