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Earlier this month, the Supreme Court of New South Wales approved the settlement of the AMP class action and appointed Maurice Blackburn as settlement administrator of the settlement distribution scheme. This was after an agreement between AMP Limited and its shareholder class action had been reached on 20 August 2023, for a sum of $110 million inclusive of costs. This article takes a closer look at how this class action unfolded and the risk solutions that could protect companies from these events.
A shareholder class action is a legal proceeding initiated by one or more shareholders on behalf of a larger group of shareholders who have suffered similar harm or losses due to the actions or alleged misconduct of a company. Using collective strength and efficiency, class actions can streamline the legal process by consolidating similar claims into a single lawsuit, lowering legal costs for individual shareholders.
In the AMP matter, 18,702 shareholders collectively brought a lawsuit against the company, after acquiring ordinary shares in AMP or American Depository Receipts representing AMP shares during the alleged period of wrongdoing between May 2012 and April 2018.
From 16 April 2018, AMP was the subject of examination by the Financial Services Royal Commission. Within this investigation, two significant instances of misconduct by AMP came to light:
· Firstly, for a considerable period, AMP had knowingly been charging clients ongoing fees without providing the promised services;
· Secondly, AMP was found to have repeatedly misled ASIC (Australian Securities and Investments Commission) in its reports regarding the charging of these fees for services that were not rendered.
Due to the receipt of funds for services that had not been performed, the earnings of AMP were overstated, and in turn, the value of the shares was accordingly inflated over the period of wrongdoing.
The market responded negatively following the revelations, with AMP's share price plummeting by approximately 11% within the first week. This resulted in the resignations of Catherine Brenner, the former Chairman, and Craig Meller, the former CEO. Additionally, two other directors stepped down from their positions.
In response to these events, Maurice Blackburn initiated a securities class action against AMP on behalf of shareholders. The action alleged that AMP failed to disclose crucial and market-sensitive information to the ASX. This failure is claimed to constitute misleading and deceptive conduct, along with breaching its continuous disclosure obligations under the Corporations Act 2001 (Cth) and the ASX Listing Rules. Here is a breakdown of the costs:
1. Reimbursement payment of $32,000 to the first plaintiff group;
2. Reimbursement payment of $32,000 to the second plaintiff group;
3. The plaintiffs’ legal Costs and disbursements in the amount of $26,213,702.45.
4. Pre-approved administration costs of $1,130,714.00 to be paid to the administrator in accordance with the terms of the settlement distribution scheme.
5. A remaining balance of $82,591,583.55 to be disbursed to the plaintiffs
Within a D&O Liability policy, publicly listed entities have the option to purchase a coverage section referred to as Company Securities Liability or “Side C”.
Side C coverage typically comes into play when a company faces a shareholder class action arising from alleged violations of securities laws, and the entity itself is named as a defendant alongside its directors and officers. This coverage helps protect the company's balance sheet by covering legal costs, settlements, or judgments associated with securities claims against the company.
If you would like to know more about the risk transfer solutions available to protect your company, please do not hesitate to contact me.
Nathan Mauriello
Client Manager – Professional & Executive Risks
Nathan.Mauriello@honan.com.au
Honan Insurance Group Pty Ltd (Honan)(Australian Financial Services Licence no. 246749, ABN 67 005 372 396) is an insurance broker acting as agent for insureds and intending insureds. Honan is not an insurer. The information in these articles are current as at the date of first publication and have been prepared without taking into account your objectives, financial situation or needs. Any advice provided in these articles is of a general nature only. Any statements concerning tax, accounting or legal matters are based solely on Honan’s experience as an insurance broker and are not to be relied upon as accounting, tax or legal advice. Before making a decision to purchase an insurance policy, please read the relevant ProductDisclosure Statement to make sure the policy is right for you. Insurance cover is subject to policy terms and conditions including policy limits and exclusions.
