The action was triggered by PeopleSoft’s disclosure to the Securities and Exchange Commission (SEC) last week that it has revised the terms of its licence refund programme, known as the Customer Assurance Program.

Under the new proposals, refunds of between two and five times a customer’s software license fees will be triggered if PeopleSoft is acquired within two years, rather than the original one year, and if the purchasing company reduces product support within four years, rather than two years.

The suit, filed yesterday in the Delaware courts, contends that PeopleSoft’s Customer Assurance Program effectively prevents the company from accepting a better deal from Oracle or any other potential buyer. There are also concerns that the new provisions would be impossible to annul should the PeopleSoft board change its mind in future.

With potential liability under the refund program estimated at close to $800 million in the third quarter, shareholders are worried that the board is deliberately trying to dissuade potential buyers from even considering the company.

However, the company argues that it is considering the needs of its customers by ensuring that they receive effective support from any potential acquirer.

Oracle’s bid for PeopleSoft is effectively on hold pending a review by antitrust regulators in Europe and the US. They are concerned about the drastic reduction in choice arising from an Oracle/PeopleSoft combination. The review is expected to be completed by the end of the year.