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Prof. dr. sc. Edita Čulinović-Herc, Faculty of law, Univerisity of Rijeka Dipl. iur. Mihaela Braut, Faculty of law, University of Rijeka . MASS SHAREHOLDER S’ CLAIMS v. LISTED COMPANIES: GLOBAL, EUROPEAN AND CROATIAN PERSPECTIVE. INTRODUCTION.

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mass shareholder s claims v listed companies global european and croatian perspective

Prof. dr. sc. Edita Čulinović-Herc, Faculty of law, Univerisity of Rijeka

Dipl. iur. Mihaela Braut, Faculty of law, University of Rijeka

MASS SHAREHOLDERS’ CLAIMS v. LISTED COMPANIES:GLOBAL, EUROPEAN AND CROATIAN PERSPECTIVE

introduction
INTRODUCTION
  • Capital market requests higher level of investors’ protection to enhance investment culture in general
  • Issuers/listed companies most often cause damages to investors when misleading them by making misstatements on capital market, whether in prospectus or in their financial reports
  • Dispersed ownership structure of listed compaines usually creates large group of investors on the plaintiffs’ side
investors protection
INVESTORS’ PROTECTION
  • 1. INDIVIDUAL PROTECTION OF INVESTORS’ INTERESTS
  • 2. COLLECTIVE PROTECTION OF INDIVIDUAL INVESTORS’ INTERESTS
individual protection main criticism
INDIVIDUAL PROTECTION – MAIN CRITICISM

- Ruling in individual litigation has the effect only for the litigants of that proceedings

- it will not affect any other investor suffering

the same damage

- it will not prevent issuer of further

fraudelant conduct

- court can obtain two different rulings in two separated proceedings, although based on the same facts

- Individual protection is time and cost ineffective for the parties and the court

collective protection 4 types
COLLECTIVE PROTECTION- 4 TYPES-
  • 1. CLASS ACTION

- The U.S. –

  • 2. OPT-IN GROUP LITIGATION

- England & Wales -

  • 3. MODEL CASE PROCEEDINGS

- Germany -

  • 4. OPT-OUT SETTLEMENT PROCEDURE

- The Netherlands –

for investors who suffered comon damages

class action
CLASS ACTION
  • OPT-OUT PROVISION –court’s ruling is binding upon all class members, regardless of their awarness about it

- CRITICISM - “ignorante passive loser”

  • CONTINGENCY FEES – NO WIN, NO PAY RULE - attorneys tie their fees to a percentage of the awarded recovery

- CRITICISM - lawyers are the most interested

parties in litigation

2 opt in group litigation
2. OPT-IN GROUP LITIGATION
  • OPT-IN OPTION – ruling is binding only upon members who expressly opted in the group

- register of plaintiffs

- cut-off date

  • NO CONTINGENCY FEES – BUT LOSER PAYS WINNER’S COSTS
3 model case proceedings
3. MODEL CASE PROCEEDINGS
  • Interlocutory ≠separate proceedings
  • Solely in securities disputes
  • Complaint Registry – at least 10 similar claims higher court of instance
  • Model case ruling – binding and final to the lower courts bring decision on individual damages
  • Possible introduction of contigency fees in exceptional cases
4 opt out settlement procedure
4. OPT-OUT SETTLEMENT PROCEDURE
  • Parties negotiate and settle the dispute out of the court
  • Apply to the courtto confirm their settlement
  • Settlement is binding on the opt-out basis
  • NO CONTINGENCY FEES - prohibited in any form
croatia litigants and competent court
CROATIA – LITIGANTS AND COMPETENT COURT
  • Right to sue - according to Capital Market Act claim can be filed by investors (→open list: shareholders, bondholders.. etc.)
  • Jurisdiction - depending on the personal status of plaintiff:

1.Municipal court (→ physical person) 2.Commerical court (→ legal person)

  • Who is being sued: listed company (additionally: members of the board, underwritters etc.)
critics of competence rules
CRITICS OF COMPETENCE RULES
  • Unsatisfactory solution: if jurisdiction of two different courts is established (which is possible) two differing judgments on issuer’s liability could be rendered
  • Risk: legal uncertainty
  • Suggestion: to change jurisdiction rules in Code of Civil Procedure
  • New solution: for capital market disputes → jurisdiction of commercial courts regardless of status of plaintiff
subject matter of dispute
SUBJECT MATTER OF DISPUTE
  • Claimant suffered the damage because of:
    • false, inaccurate prospectus,
    • delayed or inaccurate publication of inside information,
    • inaccurate (false) financial statements
is there collective action for investors
IS THERE COLLECTIVE ACTION FOR INVESTORS?
  • Collective action – only in consumer protection law
  • i.e. representative action of consumers’ association (udružna tužba)
  • Type of protection:
    • Protection of collective consumers’ interests (not individual)
    • Prohibitive judicial protection (→ trader is forced to stop with wrongdoing)
    • Compensation of individual consumers’ damages is unavailable
could investors use representative action
COULD INVESTORS USE REPRESENTATIVE ACTION?
  • Investors could form an investors’ association
  • Government’s Regulation: investors’ associations are not listed (exclusive list)
  • Investors v. consumers
  • Overlapping concepts – retail (small) investors are similar to consumers
    • Overprotected?
  • Substantial difference: risk taking is inherent to investors, consumer are more focused on quality of consumption
existing procedural devices
EXISTING PROCEDURAL DEVICES
  • Concept of joinder – a person who is joining a party to a suit
  • Type of joindership: common (formal); substantial (material); unique (unison)
  • if claimants are unique joinders, the court should render the identical award towards all of them (not always the case)
  • Request for declaratory ruling – if claimants are not sure how strong is their case they would ask the court first to decide about respondent’s liability (if sucessful they would sue for damages)
proposals
PROPOSALS
  • Jurisdiction – Commercial Courts as specialized courts
  • Introduction of group action - group of investors entitled to sue for damages
  • Opt-in option – investors have to expressly opt into the group
  • Complaint Registry – public, containing all similar claims
marc gertl and others v daimler chrysler
Marc Gertl and others v. Daimler Chrysler
  • The biggest currently going model case in Germany
  • The facts / cronology:
  • 1st Feb 2005 – president of the board in a letter to president of the supervisory board announces his resignation of the mandate before expiration
  • 16th May 2005 - Marc Gertl sells 100 Daimler shares 31,85 EUR/per share
  • “Sometimes” in May 2005 – president of the board (Mr. Jurgen Schrempp) in a conversation with a president of the supervisory board tells him that “he leaves the mandate at the disposal”
marc gertl and others v daimler chrysler18
Marc Gertl and others v. Daimler Chrysler
  • 28th July 2005
  • 9:00 Marc Gertl sells 800 shares (36,50 EUR/share)
  • 9:30 session of the supervisory board was scheduled
    • – the board accepts pre-temporary resignation of J. Schremmp and quaterly reports
  • 10:02 – after closure of the meeting Daimler sends notice to BaFiN and stock exchange
  • 10:32 – Daimler sends notice to DGAP (official register of information for listed companies)
  • After notice was sent→ price of the share jumped at 40,40 EUR
marc gertl and others v daimler chrysler19
Marc Gertl and others v. Daimler Chrysler
  • The law:
  • issuer is obliged to publish inside information without delay (the very moment it arises)
  • resignation before termination of the mandate is inside information that should be published immediately
  • Facts:
  • Marc Gertl sued for damages
  • 100 shareholders joined him in a lawsuit
  • Alleged damage – price difference (between sell price in transactions before publication and stock market price after publication)
  • Plaintiff: damage occurred as a result of delayed publication of the inside information
marc gertl and others v daimler chrysler20
Marc Gertl and others v. Daimler Chrysler
  • Plaintiff’s allegations: inside information came into existence after conversation of JS and president of Supervisory Board
  • Defendant’s allegations: inside information came into existence at the Supervisory’s board session
  • Compensation of damages depends on the court’s decision when inside information had occured
  • OLG Stuttgart: ruled for defendant
  • Supreme Court (BGH): annulled decision and returned it to the trial court
  • Case is pending before OLG Stuttgart