The collapse of Huboo Technologies Limited (now Hub Realisations Limited Company number 09727464) after it spent £118 million in equity funding has left investors with no return on their investment. The directors and executives of the company may they be sued legally for this? If so, what is the likelihood of success?
The Case for Investor Lawsuits
It is possible for investors to seek legal redress on various grounds.
It is a case of misrepresentation of the financial health of the company to the investors before investing in the company.
It is a case of failure of due diligence since the board failed to notice the signs of financial instability.
It is a breach of fiduciary duty as the executives were reckless in their spending and in the decision making.
Given that Huboo never made a profit the investors may claim they were deceived as to the viability of the business.
Precedents for Legal Action
Similar lawsuits have been brought in other corporate collapse cases:
Theranos: Investors were suing the company for giving false information about the product which led to billions in losses.
WeWork: Legal action followed when the company was sued for misleading valuations and for poor financial planning.
Patisserie Valerie: Shareholders were suing the company when it was discovered that financial fraud was being carried out.
Could Huboo also be part of the list of companies that have gone into liquidation and faced legal suits after collapse?
Challenges to Investor Claims
While lawsuits are possible, they are far from guaranteed. However, the investors may face the following challenges:
Did Huboo executives intentionally deceive the investors or was it a case of business failure?
The financial statements were legally compliant, although the company was in financial distress.
The sale of Huboo’s assets complicates the liability claims.
What Happens Next?
Law firms that represent the investors are most likely looking at whether they can make a case out of it. If the case does go to court, it may take several years to come to a conclusion and hence, the investors may not be able to recover their investment.
Conclusion
Although the lawsuits may be filed by the investors, it is not a guarantee that they will succeed. It is also very clear that Huboo’s collapse will be a lesson to other investors in the high growth start-ups. The question that remains to be answered is whether those in charge will ever be brought to account.
