Law firm Maurice Blackburn has joined with litigation funder IMF (Australia) to pursue a potential class action against Transpacific Industries “for failing to disclose material information to the market regarding its earnings and forecasts in 2008”. NSW Principal Ben Slade argues there is a good claim against TPI for losses suffered by those who bought shares between 28 February 2008 and 16 February 2009.

Slade said IMF was proposing to fund claims certain current and former TPI investors have for damages relating to TPI’s alleged misleading or deceptive conduct and breaches of the company’s continuous disclosure obligations.

The law firm points out that, over the period of 2005-2008, Brisbane based TPI grew exponentially by its acquisition of (or merger with) a number of Australian and NZ waste businesses. The company’s key message to the market during this period was that it would deliver sustainable, increased future earnings and profit through organic growth and growth through acquisition.

In February 2008 TPI confirmed previous forecasts that its operating earnings (EBITDA) for FY08 was $545m to $560m and Net Profit after Tax (NPAT) was $175m to $180m. In August 2008 TPI delivered the FY08 results, which largely achieved these forecasts.

In August to November 2008 TPI forecast double-digit EBITDA growth for FY09. At the AGM on November 6, 2008, TPI confirmed previous forecasts, stated that the business was “near recession proof” and there was no need to raise capital and stated that impairment of acquired assets would be unlikely.

The law firm said that, in stark contrast, three months later on February 16, 2009, TPI announced that its financial performance for FY09 was expected to be adversely affected by weaker commodity prices and foreign exchange rates; there would be a $46m write-down in the value of its investments in listed securities in the first half of 2009; and the company’s capital structure was being reviewed and the company was in discussions with potential cornerstone investors.

By the close of trade on February 16, 2009, over $300m had been wiped from the company’s value, after a share price fall from $2.90 to $1.80. The company then went into a five month trading halt from 17 February 2009 to 20 July 2009.

On 27 February 2009, during the trading halt, TPI released further unwelcome news for investors including: a further $69.3m loss from hedging instruments; a net loss for 1H09 of $52.6m; that TPI was in breach of its banking covenants as at 31 December 2008 such that all its debt facilities were current; that there was a net current asset deficiency of $2,057m; and that its auditors had qualified its accounts to state that there was material uncertainty as to whether TPI would continue as a going concern.

On July 20, 2009, when trading resumed in TPI’s shares, its share price declined by a further 30% from its closing price on 16 February 2009 of $1.80 to $1.26.

“It was only in July 2009, through the Ernst & Young due diligence on TPI on behalf of Warburg Pincus, that the market became aware that TPI had included $48m of irregular items in the FY08 EBITDA, thereby providing a misleading impression of the company’s ongoing profitability,” said Slade.

“TPI was making robust predictions of growth and profit and claiming that the company was “near recession proof” throughout 2008 in the midst of the global financial crisis. The reality was quite different and this was belatedly disclosed to the market between February 2009 and July 2009, causing substantial losses to shareholders.

“Australian listed companies are required to make timely disclose to the market of information that could materially affect their share price. We believe that TPI has failed in its responsibility to provide this information to the market,” said Slade.

IMF is a publicly listed company (ASX:IMF) providing funding of legal claims and other related services where the claim size is over $2m. It is the largest litigation funder in Australia, and the first to be listed on the ASX.

It will at this stage “proceed with the TPI claims on behalf of sophisticated and professional investors only,” although it added that if the Australian Securities and Investment Commission clears the way, an application could to be made to the court “to reopen the class to include retail investors”.

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