Lawyers circle as Freedom Foods chair blames CEO,...

Lawyers circle as Freedom Foods chair blames CEO, CFO

CarrieLaFrenzSenior reporter

Dec 1, 2020 –6.24pm

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Outgoing Freedom Foods Groupchairman Perry Gunner has blamed the company's accounting scandal on the former chief executive and chief financial officer and the external auditor Deloitte.

Mr Gunner said the board has relied on theinformation about the operations of the company provided to it by theexecutives and auditors.

He and interim chief executive Michael Perich metwith big shareholders on Tuesday after Monday's shocking $591.5million write-down revelation and restatement of several years' worth of accounts.

Tony Perich's nephew, MichaelPerich, was installed as CEO of Freedom Foods after former head Rory Macleodleft the business in late June.

The manufacturer behind names such as Messy Monkeyskids snacks and almond drink Milk Lab remains in exclusive talks with OaktreeCapital Management as it seeks to come to an agreement over the terms of up toa $280 million convertible note issue.

Mr Gunner told The Australian FinancialReview the board relies on information from management that is checkedby the auditors, but "clearly that reliance has failed us".

"It’s very confronting anddeeply disappointing that has happened," he said. "I think we can sayis we acted immediately and decisively – we removed the cause in the CEO andCFO.

"We have found out how it happened through theinvestigations with Ashurst and PwC … we have handed that information to ASIC.We have also had to try to understand the problem. That goes to what SKUs[stock keeping units] are profitable and what was wrong with the culture andwhat was wrong with the systems.”

One source said the board rarely visited themanufacturing sites, and when it did, everything was cleaned up as they wereshown around.

"Think of the Pope, being chauffeured around.The site was cleaned and people were prepped," he said.

Mr Gunner's comments came as law firm PiperAlderman said it is investigating a potential shareholder class action againstthe company and its auditors, Deloitte Touche Tohmatsu, after a forensicinvestigation by PwC found significant deficiencies in the company’s accountsgoing back several years.

Piper Alderman is talking to litigation funders andjoins Slater & Gordon Lawyers, which has also been fieldingincreased calls from angry investors.

“It is curious how the company has restated itsfinancials to reflect past asset impairments at this time, when indications arethat it ought to have become apparent much earlier,” said Piper Aldermanlitigation partner Greg Whyte.

The near $600 million in write-downs are valued atmore than two-thirds of the company's $834 million market capitalisation beforeits shares were placed in a trading halt on June 24.

Net assets slumped to $61 million, from $670million as the company swung from an $11.6 million profit in 2019 to a major$145.8 million loss after restating the accounts.

The auditors have indicated that no reliance shouldbe placed on the restatements due to insufficient evidence – a caveat oftenused when looking back at older accounts that need to be rectified. Deloitte alsosaid in the annual report that a material uncertainty exists that may castsignificant doubt on the group’s ability to continue as a going concern.

Mr Gunner would not comment on the nature of thecorporate regulator's investigations, except to say Freedom Foods provided itsown forensic report findings into the accounts by Ashurst and PwC to ASIC.

Mr Gunner said the company has not consideredchanging auditors, given Freedom Foods has a half-year audit at the end ofDecember.

He went on to admit, "we failedourselves", and Freedom Foods will need to build back investor trust.

Transparency push

Mr Perich said winning back investor trust isparamount, and so is breaking down the silos within the company, which will besimplified by cutting some of the 580 brandsand 1300 stock-keeping units.

“That transparency is something I've worked on overthe past months I’ve been here. I want to focus a lot on our customers, ouremployees and our suppliers. I think that is very important because if we dothat we will then deliver back to our shareholders," he said.

"We don't expect to win trust overnight ...but it is going to be about getting to our half-year result, and delivering [onthat] will be important."

Mr Gunner said there were no plans to sell off the10 per cent stake in Australia Fresh Milk Holdings since it is a "good investment", also backed by the Perichs and one of China's biggest agriculture players.

FreedomFoods shares remain suspended until the recapitalisation is announced, likelyin mid-December. The standstill deal with its financiers is now due to expireon January 29.

Mr Perich, whose family control 52.5 per cent ofFreedom Foods, disagreed that his family's influence was part of the problem.

"We were working on the information that wehad to hand. There was no overt power exercised by the family in terms of theway the business was run,” he said.

Mr Perich added the situation hasbeen "very disheartening for the family" having both friends andfamily as fellow investors.

Carrie LaFrenz has more than 10 years' experience as abusiness journalist having previously covered healthcare, retail/consumergoods, industrials and agribusiness. She is based in our Sydney newsroom. Connectwith Carrie on Twitter. Email Carrie at carrie.lafrenz@copyright link