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13/02/2009
Northern Rock Shareholders Lose High Court Bid
Former Northern Rock shareholders have today failed in their legal challenge to the Government's plan to compensate them.
The group - which included two hedge funds that owned almost 20% of the financial institution before it was taken into public ownership - argued that the government had deliberately undervalued the bank in the run up to its nationalisation.
Around 150,000 individual investors also joined to accuse the Treasury of seeking to profit at their expense.
In the High Court last month they said this had infringed their human rights, and meant they would receive no compensation.
The had argued that Northern Rock was still a valuable business when it was nationalised in February last year. While the Newcastle-based bank was being kept alive with loans from the Bank of England, this was a legitimate part of the Bank's role as the lender of last resort, the group said.
However, two high court judges, Lord Justice Stanley Burnton and Mr Justice Silber, rejected this argument.
Lord Justice Stanley Burnton, however, said the provisions made to compensate them "do not infringe their rights", but also granted the shareholders leave to appeal.
He added: "We have some sympathy with the position of the former long-term shareholders of Northern Rock, who doubtless believed they had invested in a reliable bank.
"Ultimately, however, they entrusted their investments to the hands of the management of the company."
He added: "As it turns out, their business plan was flawed and could not survive the unprecedented circumstances of the latter part of 2007."
Among the small investors were Northern rock customers who had received shares when the former building society demutualised a decade ago.
Two substantial hedge funds - SRM and RAB - as well as the Northern Rock Shareholders Action Group, and the Legal & General Insurance company also brought the judicial review.
Roger Lawson, head of the UK's Shareholders' Association, said although he was disappointed by the ruling, he added: "it's not totally unexpected".
See: Parliament Approves Northern Rock Nationalisation
(JM)
The group - which included two hedge funds that owned almost 20% of the financial institution before it was taken into public ownership - argued that the government had deliberately undervalued the bank in the run up to its nationalisation.
Around 150,000 individual investors also joined to accuse the Treasury of seeking to profit at their expense.
In the High Court last month they said this had infringed their human rights, and meant they would receive no compensation.
The had argued that Northern Rock was still a valuable business when it was nationalised in February last year. While the Newcastle-based bank was being kept alive with loans from the Bank of England, this was a legitimate part of the Bank's role as the lender of last resort, the group said.
However, two high court judges, Lord Justice Stanley Burnton and Mr Justice Silber, rejected this argument.
Lord Justice Stanley Burnton, however, said the provisions made to compensate them "do not infringe their rights", but also granted the shareholders leave to appeal.
He added: "We have some sympathy with the position of the former long-term shareholders of Northern Rock, who doubtless believed they had invested in a reliable bank.
"Ultimately, however, they entrusted their investments to the hands of the management of the company."
He added: "As it turns out, their business plan was flawed and could not survive the unprecedented circumstances of the latter part of 2007."
Among the small investors were Northern rock customers who had received shares when the former building society demutualised a decade ago.
Two substantial hedge funds - SRM and RAB - as well as the Northern Rock Shareholders Action Group, and the Legal & General Insurance company also brought the judicial review.
Roger Lawson, head of the UK's Shareholders' Association, said although he was disappointed by the ruling, he added: "it's not totally unexpected".
See: Parliament Approves Northern Rock Nationalisation
(JM)
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