More than four years since Centro nearly collapsed under $5.7 billion in debt, a $200 million-plus class action began in Melboure on Monday.
More than four years since the shopping centre owner and funds manager nearly collapsed under $5.7 billion in debt, what may be the biggest court case in Australia this year begun in Melbourne on Monday.
The civil action is expected to run in the Federal Court sitting in Melbourne for at least 10 weeks.
About 5,000 investors accuse Centro of misleading and deceptive conduct for not disclosing in 2007 that it had at least $3 billion of interest-bearing debt falling due within 12 months.
When it did disclose the current debt its shares plunged - by 76 per cent in one day on December 17, 2007 - with many people losing their life savings.
Centro has since restructured itself as listed retail property trust Centro Retail Australia, involving an amalgamation of the Centro Retail Group and Centro Properties Group.
Senior Counsel Noel Hutley, representing the class action, ridiculed the new Centro entity's 'no liability' defence for the actions of the old Centro on Monday.
'There is a degree of unreality to sever knowledge about what's happening,' he told Justice Michelle Gordon.
'One group would have known what the investment group was considering.'
A common board and executive had overseen the two Centro groups, Mr Hutley said.
The court heard Centro dramatically increased its funds under management by $14 billion to $25.5 billion in the year leading up to its near collapse.
It greatly expanded its operations, the court heard, with its debt gearing (debt to equity) increasing above its own recommended 35-40 per cent to about 74 per cent by the end of 2008.
At least 50 lawyers packed into extra benches in the court on Monday, while more lawyers filled the public gallery.
Maurice Blackburn and Slater and Gordon are representing shareholders in the class action.
The two Centro companies' debt problems were exacerbated by the tightening of credit during the global financial crisis, when it had been unable to refinance billions of dollars of debt.
Publicly listed companies such as Centro must fulfil obligations of continuous disclosure to the ASX; these include timing around maturing debt obligations; the risk of not being able to refinance or meeting profit forecasts.
Maurice Blackburn and Centro are separately taking action against Centro's auditors PricewaterhouseCoopers
(PWC) for failing to detect errors regarding Centro's debts in its financial accounts.
Centro shares were trading one per cent higher at $1.915 at 1438 AEDT.
CRF Price at posting:
$1.92 Sentiment: None Disclosure: Not Held
