HIH court decision strikes blow for shareholder class actions

Image courtesy of JanPietruszka at FreeDigitalPhotos.net

Image courtesy of JanPietruszka at FreeDigitalPhotos.net

The insurer HIH went broke in 2001 but the fall-out from the group collapse continues with a recent court decision in favour of investors.

The NSW Supreme Court has awarded damages to investors who bought shares in HIH when the share price was inflated by misleading information released by the company.

The shareholders were able to prove “indirect causation” or that they had suffered loss even though they did not rely on an overstated profit figure when buying their shares.

An analysis by Damian Clancy and Paul Bannon of legal firm Colin Biggers & Paisley says the decision sets a precedent and is significant for shareholder class actions.

“So long as a shareholder can prove that a corporation’s misleading or deceptive conduct (or material omission) artificially inflated the price of that corporation’s securities, the shareholder may be entitled to recover the loss and damage suffered by reason of that fact, even if the shareholder did not rely upon the relevant conduct,” they say.

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