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Northern Rock shareholders are expected to lodge a legal challenge today against the government in a bid to claim compensation from the nationalisation of Northern Rock.

The UK Shareholders Association (UKSA) is asking for a review into the terms of the Newcastle-based bank's nationalisation.

The group, who is representing the interests of the 150,000 estimated shareholders, believes the government should pay compensation to those who lost out when the bank was taken national.

Estimates for compensation start at as little as 5p a share. The firm's share price hit highs of 1,258p in 2007 and the UKSA is looking for compensation of up to 500p.

But the government says that as the company was unable to continue as a going concern at the time, the valuation of the shares, and therefore any compensation is, likely to be low.

The UKSA argues that as there were several parties interested in buying the bank, this valuation approach may be unlawful.

Roger Lawson, a spokesperson for the UK Shareholders Association, said: "If we don't get the government to reconsider, the shareholders will get nothing and we think that is unfair."

Once the challenge is lodged, the case will receive a hearing in about nine month's time, Mr Lawson added.

UKSA believes a "fair valuation" might produce a figure of more like £5 than 5p per share.

It is thought some 150,000 small shareholders will be hit by the collapse of Northern Rock – many who took their shares in 1997 when the firm demutualised and have seen the value of nest eggs wiped out.

Northern Rock sparked the first run on a British bank in over 100 years when the subprime crisis hit last autumn.

The government eventually decided to take the bank into "temporary ownership" when it could not repay its debts to the Bank of England and no buyer could be found to meet the Treasury's demands.