Hedge fund continues legal fight over Northern Rock nationalisation

An ongoing legal saga over the nationalisation of Northern Rock in 2008 will reach the Court of Appeal later this week, according to the Financial Times.

The paper reported that Harbinger Capital Partners, the Philip Falcone-founded hedge fund, which held an interest in £277 million preference shares in Northern Rock, is challenging a ruling made by the Upper Tribunal (tax and chancery) in 2011.

The earlier tribunal validated the decision of Andrew Caldwell, the independent assessor of Northern Rock, who was appointed by the Treasury to determine whether investors of the stricken bank should qualify for a pay-out.

Harbinger, a private investment firm specialising in event and distressed strategies, had been challenging the methodology used by Caldwell to assess that former preference shareholders should be paid £322.5 million.

At the Upper Tribunal hearing, the FT said Harbinger argued the valuer had ‘misinterpreted’ one of the valuation assumptions, the so-called ‘withdrawn assumption’, which requires the valuer to assume that all financial assistance provided by the Bank of England or the Treasury to Northern Rock had been withdrawn or taken away.

In court documents at the hearing, Harbinger had argued that the opening balance sheet surplus would mean that after a five-year rundown of the Northern Rock mortgage book or business in administration ‘there would be well in excess of £1 billion of net assets to be distributed to shareholders’.

In 2009 two hedge funds, SRM Global and RAB Special Situations, sued the government over the near-collapse of Northern Rock but had their claims thrown out by the High Court.