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Article | FI Observer

Woodford: Long Tail Claims and Liquidity Crises

By Claire Nightingale | December 23, 2022

Claims in the High Court in London serve as a reminder that the consequences of illiquidity can take time to work through the legal and regulatory system. It is critical to remember insurance in the interim.
Financial, Executive and Professional Risks (FINEX)

Recent claims commenced in the High Court in London serve as a timely reminder that the consequences of illiquidity, whilst causing an immediate shock, can take a significant amount of time to work their way through the legal and regulatory system. It is critical to remember insurance in the interim.

We set out the background to claims being made in respect of the Woodford Equity Income Fund and highlight that, while it has taken years for the matter to be investigated and proceedings to be issued, insurers will have needed to have been made aware of the issues at a much earlier date, if there is to be any chance of an indemnity from them.

The Woodford Equity Income Fund

Neil Woodford was one of the most well-known fund managers in the UK, with a career spanning over 30 years. In 2015 he launched the Woodford Equity Income Fund (the Fund), and, focussing on growth potential, invested a significant portion of the portfolio in higher risk smaller companies – some of which were not yet quoted on a stock exchange.1 In June 2019, the Authorised Corporate Director (Link Fund Solutions Limited (Link)) was forced to suspend the Fund following poor performance and investor outflows and ultimately the Fund was wound up, leaving many individual investors out of pocket.

It has been reported that the ensuing regulatory investigation by the Financial Conduct Authority (FCA) was related to the Fund’s Guernsey-listed assets, amid concerns the move to list some of the funds’ assets there was made to sidestep rules limiting the illiquid assets in the fund to 10%. The FCA revealed that at one stage the equity income fund had around 20% invested in illiquid assets - those that are hard to trade, sell or value.2

What claims are being made?

The Authorised Corporate Director (ACD)

In September 2022 the FCA stated that it was likely to require Link to pay a financial penalty and or consumer redress3. Indeed in June 2022 proceedings were issued on behalf of investors against Link.4 The claims are being brought under s.138D of the Financial Services and Markets Act (FSMA) which allows private individuals to claim compensation from a body authorised by the FCA if it breaches any of the FCA’s rules.

Law firms, Leigh Day and Harcus Parker have filed a joint application at the High Court against Link. It is alleged that Link was in breach of the FCA’s rules in its performance as the ACD. The Group Litigation Order sets out:

  • [There were] alleged breaches of rules which included inappropriate levels of investment in illiquid, speculative or hard-to-value stocks; an inappropriate investment strategy; issues with the valuations of the fund’s assets; and untrue and misleading statements in the Prospectus.
  • …If Link had not breached the rules, the Fund would not have been suspended in June 2019 and the claimants would not have been locked in. Then they could have redeemed their shares or could have continued to enjoy capital growth and/or earned income in a compliant Fund. They would have received higher returns than they did receive.” (Leigh Day, 2022).

The Investment platform

On 14 October 2022 proceedings were issued against Hargreaves Lansdown5. It is alleged in those proceedings that:

  • The Fund was wrongly recommended to customers through the so called 'best buy' list right up until the Fund was suspended in June 2019.
  • Around 133,000 Hargreaves Lansdown customers were directly invested in the Fund.

Beware late notification to insurers

The very substantial types of claims being made in this event may fall for coverage under Professional Indemnity or Directors’ and Officers’ insurance programmes. But timely notification to insurers matters. These types of policies are written on a “claims made” basis – that is to say that the policy which pays out, is the policy in place when the claim is “made”. But that is not as easy to identify as it sounds. The obligations to notify insurers arise long before court proceedings are issued: notification requirements under common insurance wordings are triggered upon receipt of written complaints seeking a remedy in damages, and or “circumstances” which may give rise to such a complaint.

When difficulties materialise which may give rise to such claims, talk to your WTW broker or Claims Advocate at an early stage to establish what needs to be done to protect the possibility of claiming an indemnity from your insurers.


1 CF Woodford Equity Income - three years on
2 Spotlight on Woodford over Guernsey dealings, as FCA launches formal probe and Fidelity stops savers buying his other fund
3 FCA decides to impose conditions on takeover of Link Group
4 Leigh Day and Harcus Parker join forces in group legal claim on behalf of Woodford investors
5 Hargreaves Lansdown boss Chris Hill retires before he can deliver his growth plan, as DIY investing giant faces Woodford lawsuit


Global Head of FINEX Financial Institutions Claims Advocacy & TPL


GB Head of FINEX Financial Institutions

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