Hi allSome of the stuff Ive mentioned below, I have mentioned...

Hi all

Some of the stuff Ive mentioned below, I have mentioned before but I have included some new points in this post.



Ive always been of the belief that the class action against CER is more of a nuisance than a concern

Before I go into CER's defences, it should be noted that the maximum potential liability payable by CER would be far less than CNP

Here are some reasons that CERs liability (if any) would be insulated:

- CER's unit price fell far less in price and percentage terms than CNP during the relevant period.

- CER's price during the relevant period fell from $1.50 to $0.40 as opposed to CNP where it had fallen from $7 to $0.30

- CER does have more shares on issue than CNP but you need to take into account that CNP has a 51% direct/indirect interest in CER and obviously it would not be a party to the class action proceedings.

- More mums and dads held shares in CNP rather than CER. It would be assumed that major institutions that held shares in CER (such as CBA) would not be taking part in the proceedings as they were obviously privy to info regarding debt maturities than other holders.


- CER does have more shares on issue than CNP but you need to take into account that CNP has a 51% direct/indirect interest in CER and obviously it would not be a party to the class action proceedings.


- Also not all who held units during the relevant period would be taking up action against CER


- Also, although the total claim against Centro (CNP and CER) is $1b, not all claims may be valid. For example, someone who day traded Centro and lost out should not be able to take part in the proceedings IMO

- PWC has now been included in the proceedings and may be burdened with some of the liability


- I assume CER would have in place some sort of insurance cover minimising the quantum of any payout. Not sure what the amount would be



Defences:

The number 1 defence would no doubt be that PWC were the auditors and signed off the accounts.

They provided an unqualified audit opinion with no emphasis of matter

Number 1: If CER directors were steadfast in maintaining the incorrect disclosure of liabilities in the report, then the audit report should have been qualified by PWC as the information contained within the financial statements did not adhere to the accounting standards. ASA701 goes through all this in detail.



Number 2: Even if the above matter being resolved, with regards to CER having a significant amount of debt maturing within a few months of the release of the audited financial report, PWC could have provided an unqualified audit opinion with an emphasis of matter on the basis "that there is significant uncertainty whether the entity will continue as a going concern and, therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report" ASA570, point 39

This particular auditing section clearly looks at the company's capability of renewing or extending the due dates of existing loans as being an item of attention

Either CER could use this is a defence or even use the onset of the GFC as a defence. Apparently the CMBS market shut down overnight just before refinancing in December 2007. It could be argued that nobody at the time could foresee the refinancing troubles ahead.

It was a common practice at the time to label upcoming debt maturities as non current as their rolling over was just a mere formality.



With regards to the dividend being annulled, CER clearly has a provision in their constitution, that they can rescind the payment of a dividend even after it has been declared if they believe the company's financial position no longer justifies the payment (sec 13.1 of constitution 15/08/05)

With regards to the ASIC action, that is action being taken against the DIRECTORS not CER

All in all, as I said previously this is more of a nuisance than threat to CER

Now you can see why

Cheers