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Corporate class actions surge.



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2CN AM Corporate class actions surge

05/12/2008

Corporate class actions surge

AM - Friday, 5 December , 2008 08:18:00

Reporter: Peter Ryan

PETER CAVE: Over the past year, the global financial crisis has claimed some high profile victims - ABC Learning, Allco Finance and Opes Prime to name just a few.

Now out of pocket shareholders are in the midst of getting even and have launched class actions totalling more than a billion dollars against insolvent companies and their boards of directors.

Here's our business editor Peter Ryan.

PETER RYAN: In the United States where the global financial meltdown was triggered by the collapse of risky subprime mortgages, more than a hundred class action claims are already in the courts - most relating to poor or misleading information to shareholders.

The fallout has also swamped Australia, where class action claims in excess of a billion dollars are underway.

ANGELA PEARSALL: People have lost a very significant amount of money on their investments so we have a larger number of people who are monitoring the performance of their shares and who are in a position to take steps to enforce their rights.

Angela Pearsall is a litigation partner at the law firm Blake Dawson. In a briefing paper to clients, she warns that class actions relating to misleading corporate behaviour will mushroom in the new year.

ANGELA PEARSALL: In a falling market, companies need to be very careful in how they consider their disclosure obligations. For example profit forecasts may need to be revised. Information that may not have been material a year ago could now be very material to the market.

PETER RYAN: With an explosion of class actions on the horizon, including ones that target individual directors, Angela Pearsall says companies need to be more prepared than ever.

ANGELA PEARSALL: We're also advising our corporate clients to ensure their insurance arrangements are suitable. Given the credit crisis I think we're likely to see more creative action on behalf of litigation funders and plaintiff lawyers in terms of who's actually joined class actions.

PETER RYAN: The litigation funder IMF is handling some high profile class actions including Westpoint, Opes Prime, ABC Learning, Centro Properties and Allco Finance.

HUGH MCLERNON: There is no doubt that there has been a material increase in the number of share holders who believe that they have been wronged by the boards of the companies in which they have invested. Oh yeah, it's mushroomed.

PETER RYAN: IMF's executive director Hugh McLernon says some companies that appear to be weathering the financial storm now will almost certainly come under pressure in 2009.

HUGH MCLERNON: You can bet your bottom dollar that right now as we speak there are major companies around the world and including Australia which are in breach of their corporate governance requirements.

PETER RYAN: But there's hold no guarantee of recovering any money for share holder litigants in such an uncertain environment and some class actions could run as long as six years.

PETER CAVE: Our business editor Peter Ryan.

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