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THE likelihood of class action lawsuits by shareholders has greatly increased.

And this is due to the financial meltdown, looming recession, falling share prices and an increase in litigation funders.

According to legal firm Allens Arthur Robinson the "perfect storm" conditions are making the threat of action by investors greater than any other time previously.

Since Australia's first big shareholder class action in 1999 - involving GIO - there has been a gradual increase.

However, this is expected to spike in the next year or so as investors witness the fallout from the credit crisis, Allens partner Alex Cuthbertson said.

A High Court decision last year (relating to Sons of Gwalia) for the first time also allowed shareholders to claim against companies as unsecured creditors.

Most class actions are based on alleged breaches of the continuous disclosure rules, when investors consider they have not been provided with all appropriate price-sensitive information.

Companies and shareholders should ensure all disclosure obligations are being met, Ms Cuthbertson said.

However, an increasingly key area of interest to investors and company directors in assessing any potential class action is information provided to authorities.

Any information gathered by the Australian Securities and Investments Commission or the Australian Stock Exchange could be used in a future class action, according to Ms Cuthbertson.

These regulators have wide-ranging powers to question companies and get access to confidential information and personnel.

"Companies need to be aware that when they are dealing with regulators they must also have one eye on the plaintiff law firms in the background," she said.

The potential implications of documents given or questions answered during these investigations could be used by all parties in a future class action.

"The Multiplex class action is a case in point where ASIC voluntarily shared information gathered using its broad investigative powers with a plaintiff law firm," Ms Cuthbertson said.

This has the potential to reveal significantly more detail than otherwise available and could hold great value for a shareholder action she said.

Litigation funders help finance legal cases on behalf of class actions and other people or companies.

Common reasons to use a litigation funder include if someone has a good claim but no money to pursue it, they can't give security to meet a costs security order or they are concerned about having to pay the other side's costs.

IMF, a publicly listed company, is the biggest litigation funder in Australia and has reported a hefty profit boost from proceeds of its growing business.

IMF reported a four-fold increase in its six-month profit to almost $19 million.

Other funders include Comprehensive Legal Funding and Litigation Lending Services.