Northern Rock: The Latest Chapter
By: Ainsley Brown
This is an update to Shareholders Fail in Human Rights Cases Against UK Government.
The Northern Rock shareholder group, lead by the Hedge Funds SRM Global and RAB Capital, last week launched their appeal of the decision reach in the High Court about the UK government’s nationalization compensations scheme. The appeal comes in the form of judicial review and means that the group is not challenging the legality of the government´s right to nationalize the bank. However, they do object to the way in which this right was exercised.
In the High Court: What in fact the shareholders were seeking was a declaration that the Government’s compensation scheme upon nationalization was incompatible with the human rights principles that guide government expropriation. That is to say that the government ought to pay compensation; in reasonable amount of time; and is to be as close as possible, taking account of the public interest, to the full and fair value of the property. Considering that the shareholders stand only to receive 5p a share, instead of the £3 – £4 per share based on their valuation of the company as a going concern, the above looks like a very sound argument.
However, Government lawyers countered by arguing that since Northern Rock received substantial government assistance, without which it would have gone into liquidation, the shares could not be valuated as if it were still a going concern. Instead, Northern rock would be valued as if it had indeed gone in to liquidation.
Both sides continue their respective arguments. However Lord Pannick, QC, acting for the group further elaborated on the group´s position in his opening. Lord Pannick made what I believe to be a brilliant attack on the government’s position by pointed out that the High Court in coming to its decision had failed to have any regard for the fact that “the government had repeatedly emphasized that Northern Rock was at all times a solvent business with a strong asset base. ” This point cannot be over emphasized. It is an important one because since the bank received an injection of funds to make it more liquid from the Bank of England as a bank of last resort – such funding by the way is only available to banks that the government believes are sound – how could it be that receiving this funding makes the bank unsound?
A very interesting argument and it will be even more interesting to see how the government counters.
