Directors of collapsed retirement adviser Knight Williams are to sue the Financial Services Authority for up to £50m.
They are seeking to use European human rights legislation against the FSA, formerly SIB, to compensate shareholders for damage caused by being forced into liquidation.
SIB set up a special complaints procedure which in July 1995 estimated KWAC's compensation bill to 152 disgruntled investors at £2.7m, with 63 further cases to investigate. A further 275 cases emerged and KWAC's advisers Grant Thornton advised it to throw in the towel and in 1995 it went into voluntary liquidation.
The directors' assessment of KWAC's value is based on the calculation of the £1.9bn price offered by Prudential last week for M&G.
It is understood City lawyers Lovell White Durrant have been retained and is advising financial services barrister Anthony Speaight, QC. It is understood they will use protocol one of the European Convention on Human Rights, guaranteeing the right to “peacefully enjoy possessions” which includes the right to trade.
The action will proceed only after agreement has been reached over around £1.3m left in the company's coffers.
Liquidator Arthur Andersen has warned the matter will go to court if directors and the Investors' Compensation Scheme do not compromise. A last meeting will be held on Thursday.
A Knight Williams spokesman says: “The shareholders will be anxious to recover the losses they suffered.”
ICS spokeswoman Pamela Marshall says: “We would like to reach an agreement. Our claim against the remaining assets is based on assigned rights from investors.”
The Knight Williams' affair has so far cost the financial services industry £3.5m in ICS payouts. Directors have already taken the ICS to a judicial review over payouts it made to a former client.