Problems at L & Y came to light at the end of last year, when new managers discovered that many policies had been invested in properties, which had been making a loss, when the original terms of the policies excluded this. The society is seeking a High Court ruling on the validity of these investments.
The society manages nearly pounds 100m and has 70,000 policyholders. Antony Gold, a partner in Eversheds Alexander Tatham - which represented victims of the Barlow Clowes scandal - said it would be appointing barristers for the members, who will fall into as many as four groups with separate sets of interests.
L & Y may also seek a ruling on the status of certain policies funded by lump sums. There is a question as to whether these were eligible for the usual tax exemption that applies to a friendly society.
A third problem, concerning doubts about tax exemption on a number of policies that were put on the market before their terms had been approved by the Registry of Friendly Societies, has been resolved with the Inland Revenue, however. Investors will not lose any tax relief.
L & Y's annual report, sent to investors, put the potential costs of the unresolved problems over property investment and the lump sum-funded policies at more than pounds 8m. The maximum liability for the property fund investment is estimated at pounds 6.2m; for the lump sum investments it is slightly more than pounds 2m.
L & Y expects the judgment to give guidance on how investors should be compensated, if it is decided this is necessary.
John Ramsden, the society's chairman, said that it was possible that the burden would have to be shared among all investors - even those who had suffered as a result of the society's actions - through a levy.
L & Y is not taking on new business at present.