Trying for new culture 'a nightmare' at Gunns by: Matthew...

Trying for new culture 'a nightmare' at Gunns

by: Matthew Denholm, Tasmania correspondent
From:The Australian
October 05, 201212:00AM

TRYING to instill a culture of compliance at Gunns Ltd was a "nightmare", dumped chief executive Greg L'Estrange has told a hearing into insider trading charges against the company's former chairman.

Mr L'Estrange told the Launceston Magistrates Court yesterday that he had found it very difficult to establish a compliance culture at the timber firm, now in administration.

"It's not a company with a culture of compliance with . . . policies," he told Australian Securities & Investments Commission investigators in a statement read to the court.

Mr L'Estrange, sacked by Gunns administrators PPB Advisory last week, was giving evidence in preliminary proceedings of charges against former company chairman John Gay.

Mr Gay has pleaded not guilty to two counts of insider trading over his disposal of 3.4 million shares in December 2009, when it is alleged he was in possession of a management report that pointed to massive declines in earnings and profit.

Mr L'Estrange told the court he did not approve of Mr Gay's actions in selling the shares.

"It was my personal view that it was inappropriate," he said. However, he conceded he formed his view before knowing all the facts behind Mr Gay's decision.

The court heard that Mr Gay wanted to sell the shares to "get his affairs in order" because he had received a bad diagnosis in relation to his prostate cancer. It also heard Mr Gay failed to follow Gunns's share trading policy, which required senior executives and directors to seek written permission before trading shares.

However, Mr L'Estrange gave evidence that he, too, had breached this policy, although by buying shares - not selling them - and had not been aware of the policy's existence at the time. "When I bought shares, I didn't comply . . . with the policy," he said. "I always thought selling - not buying shares - was the issue."

On February 22, 2010, Gunns reported a 98 per cent plunge in December half-earnings to $420,000, with the fall caused by operational issues, mainly a fall in woodchip demand and prices.

The announcement saw the Gunns share price fall rapidly from 88c to 68.5c.

Prosecutors argue Mr Gay, who resigned months later, possessed inside information - an October 2009 management report - that he ought to have known was not generally available.

They argue that if the information in the report - a 103 per cent decline in year-to-date earnings and a 139 per cent drop in profits before tax - had been generally available, a reasonable person would have expected it to have a material effect on the price or value of Gunns's shares.

Mr L'Estrange told the court that figures in monthly management reports did not factor in non-trading issues that might impact on final results. He also agreed the reports - including the October 2009 report relied upon by the prosecution - contained errors, some significant.

And he agreed, under questioning from Mr Gay's lawyer, Phillip Priest QC, that if this report had been released publicly, it may have misled the market