Ango Irish Bank Corporation (1)

Arguably, it is too soon to make a comment on the Ango Irish Bank debacle. But this post is a comment and is timely, so the argument tips to comment, rather than no comment. A newspaper suggestion that the Irish Financial Services RegulatorY Authority (“IFSRA”) had actual knowledge of Sean Fitzpatrick’s loans, and their size, for years, shows that the situation may develop at considerable speed, justifying a torrent of comment now and not later.

Undoubtedly, the timely moment for full assessment must surely lie with the occasion that the Office of Director of Corporate Enforcement (“ODCE”) issues a report of some kind. The public and the shareholders need that; currently, too much is unknown.

The Irish Times reports

A DUBLIN solicitor has said it is a “racing certainty” that shareholders will be taking a case for damages arising from what has happened with Anglo Irish Bank.

My solicitor colleagues who are consulting counsel are to be commended for their spirit, but counsel are not a source of evidence, just opinion, and what we lack is not opinion but evidence. There is, of course, the small matter of the need to avoid making defamatory statements; so any comment cannot be full.

What we know is that a sense of grievance in shareholders is not, itself, a spur to action. After all, if the sense of grievance springs from the loss in value of the Anglo Irish Bank shares, it has a weak foundation. Did they not know of the Anglo Irish Bank “business model”? Is it not the failure of that model that has caused the major part of the shareholder loss?

There is a good argument to excuse the shareholders; it is, surely, a legal and business fiction that shareholders know what they are doing? It is equally a fiction that it is open to them to effectively protect themselves (other than by selling their shares)?

That reflection suggests the principal ground for any useful legal action (from a shareholder viewpoint; there are other viewpoints). The only useful “entitlement” of an Anglo Irish Bank shareholder was the right to full disclosure of the way in which Anglo Irish Bank was being managed. Anything less placed the shareholders in the category of “outsiders” as opposed to “insiders”. There is no evidence, or insufficient evidence, on that topic currently. That is the kind of information that an investigation will look at (but will it?) and we should turn our eyes to the ODCE rather than to the Law Library for that information.

What counsel can currently tell us (well, some of them anyway), is that on the available information, Anglo Irish Bank Corporation is the obvious plaintiff for any contemplated proceedings against the Bank’s directors. Under the rule in Foss v Harbottle (1843), a shareholder is not entitled to litigate, save by derivative action, a wrong done to a company. A derivative action is possible only where the shareholder can prove a fraud.

(Before I am assailed with suggestions on this topic, consider the question of reliefs; what is the point, say, of seeking a winding up order against Anglo Irish Bank Corporation?)

So, is there any hurry? Not really; the Statute of Limitations is indulgent (relative to plaintiffs suffering personal injury) to aggrieved shareholders.

What might be useful currently is the formation of a network of support by shareholders.

By the same token the directors will, presumably, form an equivalent network of support among themselves. (On current information a cool headed gambler would put his money on the directors to fend off any challenges from shareholders. That simply shows that information is the key and the shareholders lack information).

Last comment: questions about insider trading belong, in the regulatory sense, to IFSRA and not ODCE. IFSRA was never intended to function to protect people like the the Anglo Irish Bank shareholders. If the Government had intended any such purpose it would have made provision for shareholders to bring a class action themselves and, just as importantly, would have given them a specific right to cite breaches of statutory duty as a ground for a civil claim by them. The whole thrust of modern government in Ireland is to prevent any such personal action of vindication.