If the corporate watchdog can start civil court legal action against current and former directors and executives of Centro Properties Group and Centro Retail Trust for allegedly falsely stating about $2.1 billion of liabilities in the 2007 financial accounts, what about directors of failed companies such as Allco, MFS, ABC Learning, Babcock and Brown etc etc?
In fact yesterday’s news of the action means there will be some very nervous directors of companies like some of those former high flyers, as they contemplate the regulator’s action.
They will have in their minds the ASIC victory against directors of James Hardie, now under extensive appeal in the NSW court.
That was a trial under civil law, where the burden of proof is lower, as is this latest action.
As we have so far seen with the James Hardie directors who were convicted by the court, the verdicts have wrought some financial penalty, but the reputational damage from the guilty verdicts has been far more widespread.
Centro Properties and the associated Centro Retail trust were the first significant listed companies to get into trouble after the credit crunch started in August 2007.
Prior to that it had been unlisted and listed hedge funds and notably, the RAMS home loan group that was partly bailed out and taken over by Westpac in late 2007.
It was in fact December 2007 (around December 12-17) that Centro first reported it was having problems rolling over a big US loan.
Those troubles because fact in the week before Christmas when it couldn’t roll over the loan, leaving its viability up in the air.
In early 2008, it became clear that the loan values in the accounts (especially those current and non-current) were turning out to be different in reality to what had been stated at June 30, 2007.
Current liabilities were turning out to be substantially more than reported in the accounts.
Centro’s problems shook the market’s faith in highly geared companies, and fears grew about ABC Learning, MFS, Allco, Babcock and Brown (even Macquarie Group/Bank and some of its listed funds), big banks and the share price plunge accelerated.
Now ASIC is moving against the first real casualty of the crunch.
The Centro directors charged read like a who’s who of the club. They include:
- Former chairman Brian Healey;
- Current chairman, Paul Cooper ;
- Current non-executive director, Jim Hall;
- Former director Sam Kavourakis;
- Former director, Graham Goldie.
- Former director, Peter Wilkinson;
- Former CFO, Romano Nenna.
Former Centro CEO, Andrew Scott, the man who drove Centro’s debt-fuelled expansion, has also been included in the action.
He resigned from Centro in 2008 after the company’s fate proved to be unsalvageable.
He received a $3 million for "termination payment" in exchange for providing consultancy services for several months. He left at the end of March, 2008.
In its statement ASIC said it is seeking orders to disqualify the directors and officer from managing corporations and will ask the Court to impose pecuniary penalties on them.
"ASIC alleges that these directors and officer failed to discharge their duties with due care and diligence in approving the financial reports for Centro Properties Ltd, Centro Property Trust and Centro Retail Trust for the year ended 30 June 2007.
"ASIC contends that these 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. This resulted in the relevant entities not complying with the applicable accounting standard.
"ASIC also contends that these directors and the officer knew that the entities had very significant short term interest bearing liabilities, and should have known that these liabilities were incorrectly classified in the 2007 financial reports.
"ASIC notes that this is the first case brought where the requirement that a listed entity’s CEO and CFO declare in writing to the company directors that the financial reports comply with the accounting standards will be an issue before the Court, the regulator said.
The decision to proceed with civil action against the Centro directors will worry directors at a host of companies, including the aforementioned MFS, Allco, ABC Learning Centres. Babcock & Brown, as well as Timbercorp and Great Southern Plantations.
Of those, ABC Learning and Allco Finance Group stand out as examples where disclosure proved to be incorrect.
The former Chairman of ABC’s Audit Committee was David Ryan who is currently the Chairman of Transurban and a director of Lend Lease.
Allco’s directors at the time included current Qantas director, Barbara Ward as well as Rio Tinto director and News Corp director, Sir Rod Eddington.
The charges against the various Centro figures will be in the Federal Court on the 20th of next month.
"ASIC alleges the financial reports of the Centro Properties Limited, Centro Property Trust and the Centro Retail Trust for the year ended 30 June 2007 did not comply with the relevant accounting standards and regulations, nor did they give a true and fair view of the financial position and performance of the enti
