Lawyers for a group of C&W American Depositary Receipt (ADR) holders said in a statement issued in the United States on Thursday that they had filed a class suit in a court in Virginia state, claiming damages after a heavy fall in C&W stock.

C&W's shares lost almost half their value earlier this month when the potential $2.4 billion tax liability was finally revealed.

A C&W spokesman said on Friday the company was "aware of its obligations to shareholders and would defend itself vigorously."

C&W's problem dates back to 1999 when the 130-year-old company agreed to indemnify, or insure, German telecoms giant Deutsche Telekom against tax liabilities.

The indemnity was written into an agreement by C&W to sell 50 percent of British mobile phone firm One 2 One to Deutsche Telekom, which feared the deal could land it with a big UK tax bill in years to come.

C&W only disclosed the indemnity on December 6 after Moody's Investors Service cut its debt rating to "junk" status, a move that triggered the indemnity clause, forcing C&W to secure a bank guarantee for 1.5 billion pounds or to set aside that sum in cash.

The company has expressed confidence that Deutsche would not be hit with the tax liability and the 1.5 billion pounds will never be needed.

C&W shares were up 1.7 percent at 44-3/4 pence by 1135 GMT, off the day's high of 45p, valuing the firm at around 1.07 billion pounds. The stock once traded above 12 pounds at the height of the Internet boom of 2000.

Traders said there was not much interest in the stock and trading volumes were thin.

C&W has seen its fortunes plunge after a gamble on putting a focus on Internet-related businesses and pulling out of its old-fashioned communications businesses failed.

One of Britain's best-known companies, C&W this month suffered the humiliation of bowing out of Britain's leading index of blue-chip stocks.

Last month, the firm cut 3,500 jobs at its money-losing corporate telecoms arm, C&W Global, and announced its chairman-designate David Nash had quit.