Employee equity is supposed to give staff a stake in the company’s success but at FNZ, it has instead produced a multibillion-dollar dispute and a preliminary battle over where the real battle should happen.
FNZ has opted against an appeal, according to Investment News’ latest report, following a split Wellington High Court decision that leaves the company and its employee shareholders facing the prospect of a lengthy legal contest.
The important distinction is between claims against FNZ itself, which have been stayed in favour of arbitration, and directors’ duties claims pursued derivatively, which Justice Victoria Heine (pictured) found were not capable of being arbitrated.
Divided ruling
The proceedings involve FNZ and 17 current and former directors. Employee shareholders allege that capital raisings in 2024 and 2025 unfairly diluted their economic interests through the issue of preference shares and warrants to institutional investors.
Hundreds of former and current employees, who own a 23pc stake in FNZ, claim the value of their shares were heavily diluted by a series of fundraising deals.
The action is fronted by kiwi Mike Stevens, (pictured) an Edinburgh-based, former FNZ employee who claims his shares lost 80pc of their value, jeopardising his retirement plan and according to a Telegraph report losing him around £8m.
The shareholder action has been reported as a US$4.6 billion claim. Those allegations remain contested.aap.com+2
The latest ruling separates two sets of claims:
- Four unfair-prejudice claims were stayed in favour of arbitration.
- Twelve causes of action concerning directors’ duties were held to be non-arbitrable insofar as they are pursued as derivative claims.businessdesk.co+2
The court also invited further submissions on whether the directors’ claims should nevertheless be stayed. FNZ said it would continue to argue that a stay was necessary.
In other words, a finding that claims cannot be determined in arbitration is not necessarily an instruction to begin the public trial immediately.
The employee-share ownership problem
The shareholders’ complaint alleges that the financing arrangements gave institutional investors preferential economic rights while materially reducing the value of employee holdings.
FNZ has rejected the claim, previously describing it as “entirely without merit” and saying its directors acted in the interests of the company and its stakeholders.moneymarketing.
The case involves the commercial need to raise capital, the rights attached to different share classes, and the obligations of those approving the transactions.
The New Zealand Shareholders’ Association’s earlier analysis identified a particular vulnerability in FNZ’s employee ownership structure, saying that the employee share classes it examined carried no voting rights, leaving their holders without a direct voice in shareholder voting or board representation.
Why the derivative claim matters
New Zealand’s Companies Act 1993 distinguishes between derivative proceedings under section 165 and relief for prejudiced shareholders under section 174. Broadly, derivative proceedings concern claims brought with the court’s permission on behalf of a company, rather than simply a shareholder seeking compensation for a personal loss.
Justice Heine’s reported conclusion was correspondingly specific:
“The substantive claim that the plaintiff seeks to bring derivatively is non-arbitrable.”
The significance is not that every shareholder dispute must be heard in open court.
FNZ disputes the claims
FNZ welcomed the decision referring the claims against the company to arbitration under the parties’ Securityholders’ Deed. Following the ruling, a spokesperson said the company remained confident that the claim was without merit.
The employee shareholders, meanwhile, said they wanted an expedited timetable and would seek disclosure of board papers, minutes and advice relating to the capital raisings. That is their stated litigation objective, not a finding that every document sought must be disclosed.
The latest decision has therefore settled neither liability nor the value of any recoverable loss. It has addressed where different parts of the dispute may be determined, while leaving further procedural questions in play.
