massive centro class action gets underway

http://www.abc.net.au/news/2012-03-05/centro-class-action-gets-underway/3868936

Massive Centro class action gets underway
PM
By Rachel Carbonell

Updated March 05, 2012 21:10:05

One of Australia's biggest class actions has begun in the Federal Court involving thousands of shareholders in property investment company Centro.

More than 50 lawyers assembled in the Federal Court in Melbourne to represent the different parties in the class action against the shopping centre owner and funds manager.

Shareholders who lost millions when Centro's share price crashed in late 2007 are seeking damages.

It is alleged two Centro companies failed to reveal the true state of their debt, which later led to the share price collapse.

Lawyers for the class action say the failure amounts to misleading and deceptive conduct and to a breach of the Australian Stock Exchange continuous disclosure duties.

Martin Hyde, a partner at law firm Maurice Blackburn which is representing the biggest group in the class action, told the court investors were not aware of the scale of Centro's debt leading in the global financial crisis.

"Essentially we're saying that people invested in Centro under the misapprehension that it was a company that was well-placed against the backdrop of the emerging global financial crisis, when actually they were investing the money in entities that had $6 billion of debt due before Christmas time," he said.

The complicated case involves detailed matters of cross ownership, collateralisation and control.

Centro last year restructured its businesses into a new entity.

One of the many issues to be thrashed out in this case, which is set to take at least 10 weeks, is where the responsibility for liability for the class action lies.

Mr Hyde says the case is complicated by restructuring within Centro.

"I think that there's two different entities, so Centro Properties is effectively now defunct, and one of the class actions is against Centro Properties. The other entity, Centro retail, has now merged and is part of the new sort of re-vamped Centro," he said.

"And so hard to get money back against an entity that's no longer really there, but Centro Retail certainly looks to be very solvent."
Auditors sued
Audio: Centro shareholders have their day in court (PM)

Centro's auditors, PricewaterhouseCoopers, are also being sued as part of the class action.

"Our clients say that the clearance that PricewaterhouseCoopers gave, the thumbs up effectively that PricewaterhouseCoopers gave to Centro that their accounts were good to go was misleading and deceptive because the accounts were false," Mr Hyde said.

In a statement, PricewaterhouseCoopers said it would vigorously defend itself in court.

It says Centro did not disclose all the relevant information about the status of its financial arrangements.

Professor Ian Ramsay, director of the Centre for Corporate Law at the University of Melbourne, says the judgment will be watched closely by the business community.

"There are some very important legal issues at stake here. And we don't always see that with class actions that have been brought in the past," he said.

"There are some very important issues to be resolved about continuous disclosure obligations of Centro.

"The key allegation here is that Centro didn't comply with its continuous disclosure obligations under the listing rules. We don't see a lot of litigation, we don't see a lot of court cases about continuous disclosure rules.

"But because these rules apply to all listed companies they are important. We look for decisions of our courts to provide guidance to the market place."

The directors of the two Centro businesses involved were found guilty last year of breaching the Corporations Act when they were taken to court by Australian Securities and Investment Commission (ASIC).

The class action is being funded by a third party, a litigation funder.

If successful it will take 30 to 40 per cent of whatever the court awards, leaving the balance for the victims of Centro's share collapse.