The sleeping giant has finally arisen from its slumber and it is fair to suggest that there will be some very nervous ex-company directors this morning. Today, ASIC announced that it was bringing civil charges against the former executive and non-executive directors (as well as the former chief financial officer) of collapsed property group, Centro.
Centro was the first high profile Australian victim of the global financial crisis with its share price falling from $10.06 to $0.04 in March this year after its debt-funded, over-priced purchase of United States REIT, New Plan Excel Realty in 2007. (The company has been kept alive by its consortium of bankers, with its share price has recovered in recent months to $0.38).
Like most corporate court cases, the Centro directors are not being charged directly in relation to the company’s collapse or their poor business judgment (over-paying for assets and almost sending a company broke is not in itself a crime), but rather, for providing inaccurate financial information to shareholders.
ASIC is alleging that Centro’s directors failed to discharge their duties with due care and diligence in approving the financial reports for Centro Properties, Centro Property Trust and Centro Retail Trust for the year ended 30 June 2007. ASIC claimed that the Centro’s financial reports contained material misstatements, specifically, a significant amount of interest-bearing liabilities of each of the relevant entities were wrongly classified as non-current liabilities, rather than current liabilities.
The amounts involved are substantial.
ASIC alleged that Centro Property and Centro Retail failed to correctly classify $1.54 billion of interest-bearing liabilities as current as at 30 June 2007 (the entities noted that they had only $1.1 billion in current liabilities at that date).
Similar to its civil action against the former directors and executives of asbestos producer, James Hardie, ASIC is attempting to have the Centro figures banned from serving as directors and also monetary penalties.
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.
The Centro directors charged read like a who’s who of the Directors Club, including:
- Former chairman Brian Healey (who also sat on the boards of Foster’s and Incitec Pivot);
- Current chairman, Paul Cooper (a former lawyer who was also a director of AXA Australia);
- Current non-executive director, Jim Hall (a former BHP executive who is currently a director of PaperlinX, Alesco, ConnectEast and a member of JP Morgan’s advisory board);
- Former director Sam Kavourkis (previously the Managing Director of National Mutual);
- Former director, Graham Goldie (previously a senior executive at Coles Myer).
- Former director, Peter Wilkinson (previously a managing director of David Jones and senior executive of Coles Myer);
- Former CFO, Romano Nenna.
Former Centro CEO, Andrew Scott , the man who allegedly masterminded Centro’s debt-fuelled ascent and subsequent fall has also been included in the action. Scott resigned from Centro in 2007 after the company’s collapse but received a $3 million for “termination payment” in exchange for providing consultancy services for several months.
The decision to proceed with civil action against the Centro directors will have sent a collective shiver down the spines of many Australian boardrooms. Centro was the first GFC-related collapse — it was followed by MFS, Allco, ABC Learning Centres. Babcock & Brown, Timbercorp and Great Southern Plantations. It is likely that ASIC have simply not gotten to the others yet.
Those other failed companies, like Centro, appeared to produce financial reports which were misleading or false. ABC Learning Centres was revealed to have inflated profits through controversial accounting treatment of development payments. The world’s largest child-care company announced a loss of $437 million for the 2008 year (far more than the sum of all of its reported profits) and was forced to rely on a Government bail-out to remain in business. The former Chairman of ABC’s Audit Committee while this was all going on was David Ryan. Ryan is currently the Chairman of Transurban and a director of Lend Lease.
Similarly, Allco Finance Group made substantial errors in its financial reports prior to its collapse, especially with regard to classification of current and non-current liabilities (Allco admitted to understating its June 2007 current liabilities by around $2 billion). Allco’s directors at the time included current Qantas director, Barbara Ward as well as Rio Tinto director and Rudd advisor, the “Teflon Knight” Sir Rod Eddington.
The charges against the various Centro figures will be first heard by the Federal Court on 20 November 2009.