Shareholders and Corporate loss.
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Shareholders and Corporate loss. A recent Court of Appeal decision has clarified when a shareholder who has suffered a loss may have a cause of action in circumstances where the company concerned has also suffered a loss. Background The Prudential Assurance case established the principle that a shareholder in a company cannot sue for damages in respect of the diminution in the value of the shares held by him caused by a wrong to the company, at least when the company itself has a cause of action entitling it to recover for the wrong to it. Facts The claimants were the beneficiaries under a discretionary trust set up in 1989 by their father, George Walker, the founder and chairman of the Brent Walker Group Plc.
The events that gave rise to this action were connected with efforts by Mr Walker and the Brent Walker Group Plc to prevent that company's financial collapse following the takeover of William Hill and the Mecca group of companies, and the ensuing bond issue and debt restructuring. Decision The principle in the Prudential Assurance case was considered but the Court of Appeal's decision was based on the principle that, provided claimants can prove that they have suffered a quantifiable financial loss caused by the actionable fault of the defendant, they may recover those losses as damages. The Court held that the Prudential Assurance principle will not deprive a claimant of an otherwise good cause of action in a case where: the claimant can establish that the defendant's
at the suit of a company in which the claimant was financially interested, whether directly as a shareholder or indirectly as, for example, a beneficiary under a trust, would not deprive the claimant of a cause of action. The amounts claimed by the claimant beneficiaries in this case overlapped at least in part with amounts that might be claimed by the relevant company. Nevertheless, the Court of Appeal decided that the beneficiaries were entitled to pursue their claim. Comment As long as a shareholder's claim satisfies the two conditions mentioned above, the shareholder will be able to sue a third party even where that third party's conduct also gives rise to a cause of action on the part of the company in which the shareholder holds shares.
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