Directors’ Duties and Shareholder Litigation in the Wake of the Financial Crisis

Directors’ Duties and Shareholder Litigation in the Wake of the Financial Crisis

Corporations, Globalisation and the Law series

Joan Loughrey

The financial crisis revealed failings at board level at many financial institutions. But despite calls for bank boards to be held to account, there has been a remarkable paucity of litigation against bank directors for breach of their duties to their institutions. This book assesses whether the law relating to directors’ duties and shareholder litigation has contributed to this, taking into account the changes to both that were introduced by the Companies Act 2006.

Chapter 5: Shareholder activism and litigation against UK banks – the limits of company law and the desperate resort to human rights claims?

Roman Tomasic and Folarin Akinbami

Subjects: business and management, corporate social responsibility


Any study of shareholder litigation against directors of listed companies risks concluding almost as soon as it has begun. A major reason for this is the general lack of such cases, especially when a comparison is made with other common law jurisdictions such as the US and Australia.1 In contrast there has been much more shareholder litigation in regard to UK private companies. Most shareholder derivative claims in the UK and Australia involve private companies and not public companies.2 One might have provided opportunities for legal actions to be brought against directors of loss-making banks and other financial institutions, but this has not happened. Bank depositors have been reassured by an enhanced depositor protection scheme and have returned to the prevailing level of trust that they tended to have for banks before the crisis. The crisis facing highly leveraged financial institutions was triggered by a liquidity crisis. This liquidity crisis saw banks refuse to lend to each other because of their fears concerning the quality of the securities being offered – this crisis of trust between banks continues to some extent today. So, what are the prospects for further litigation? Banks are unlikely to sue each other for the failures that have occurred as they all have similar stories to tell and their relationships with each other are too important to be damaged by public litigation.3 What then are the prospects for shareholder litigation in response to misconduct or breach of duties in UK banks?

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