In the quarter before a huge tranche of performance shares were due, JK entered brand new contracts for never-before-needed integrations, which resulted in just enough revenue to make him and his compatriots very rich at the expense of shareholders. They made practically nothing for the company, but according to paperwork were all finished just in time. Then after those 3 huge and anomalous contracts, nothing like it was ever needed again. They resulted in no material benefit to the shareholders ever.
The question is: were the directors acting in the best interests of shareholders? Did the directors enter those contracts because they thought it was good for shareholders, or because they personally stood to benefit?
It is a legal requirement that directors act for shareholders. And that's not a wishy-washy "ah yeah, but really everyone acts for themselves, it's all fine". This is a major issues in the Corps Act. It's different to just "everyone is in it for themselves, we all go to work for the wages, not for the benefit of the company". For starters, there is a higher level of responsibility in becoming a company director than just being an employee. And secondly, if you use a position in a company to harm the company and instead net yourself hundreds of millions of dollars... you wouldn't expect to just be fired, you'd expect to be arrested.
So the judge has to assess why the directors took actions that reduced value for existing shareholders by 30% and claimed that for themselves. Were they well intentioned and failed miserably, or were they poorly intentioned? ASIC brought a civil case here, because proving someone's motive is tough. The judge has to decide on "the balance of probabilities" whether the directors intentionally acted against shareholder interests. Not "beyond reasonable doubt" which is more a criminal thing. This is just "which is more likely".
In doing this, they'll look at the actions of the directors. Communications. Whether this sort of integration is normal - both across the industry, and by ISX. Why did the CEO draw up the certificates of completion to squeeze the revenue in to this period? Most of the invoices that got that revenue were never paid by the customers- so how did they decide on the revenue? Did shareholders stand the benefit long term?
SP1 Price at posting:
$1.07 Sentiment: Sell Disclosure: Held
