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Centro Retail in Talks to Settle A$200 Million Lawsuit

Centro Retail Australia, formed from the reorganization of a mall manager facing claims of more than A$200 million ($204 million) by shareholders in a lawsuit, is in talks to settle the case.

The company asked for a share-trading halt “pending an announcement regarding class action litigation settlement discussions,” Centro Retail said in a statement today. IMF (Australia) Ltd., a provider of funds for litigation, also requested its stock be halted from trading, according to a separate statement.

The trial before Federal Court Justice Michelle Gordon began March 5 and was scheduled to run through June 22 as shareholders of Centro Properties Group, the former Australian mall manager, claimed the company misled them over debts. Lawsuits filed by class-action firms Maurice Blackburn Lawyers and Slater & Gordon Lawyers were being tried together, with PricewaterhouseCoopers, the accounting firm, also being sued for failing to audit the company properly.

“There’s a bit of a tendency to have these things settled,” Ian Ramsay, a professor of commercial law at the University of Melbourne, said in a telephone interview. “The judge expressed concern over the cost of the litigation.”

Cameron Scott, a spokesman at Maurice Blackburn in Melbourne, declined to comment. Hamish Heard, a spokesman at Slater & Gordon, also declined to comment. John Walker, executive director at IMF (Australia), said a blackout was in effect and he couldn’t comment.

Misleading Accounts

Several of Centro’s former directors and executives were found liable in 2011 for having released misleading statements.

Justice John Middleton in Melbourne fined Andrew Scott, a former director, A$30,000 and barred previous Chief Financial Officer Romano Nenna from serving as a director for two years for approving the release of misleading statements. Four other former directors and two who were directors at the time of the Aug. 31, 2011, ruling were reprimanded.

Centro’s 2007 annual report failed to disclose A$1.5 billion of short-term liabilities by classifying them as non-current, and the company didn’t declare $1.75 billion of short-term debt guarantees of an associated company, Middleton said in an earlier ruling in June. The mall manager also didn’t disclose A$500 million of short-term debt at one of its units, the judge said.

‘Significant Deficiencies’

Middleton found “significant deficiencies” in the audit conducted by PricewaterhouseCoopers, said Ramsay, the commercial law professor.

The extent to which auditors are liable in company-related lawsuits in Australia is unclear, Ramsay said. This case could be an opportunity to clarify the limits on their liability given that auditors are often seen as the last defendant standing when companies file for bankruptcy or are liquidated, he said.

Centro first announced a restructuring plan in 2009 after a debt-fueled U.S. buying spree backfired when the global financial crisis caused property values to plummet and borrowing costs to soar, leaving the company unable to refinance its liabilities.

Centro, which managed about A$16.5 billion of shopping malls in Australia, New Zealand and the U.S., accumulated about A$16 billion of debt across its businesses. The company avoided receivership in December, when shareholders and debt holders agreed to a plan to swap A$2.9 billion of debt for equity in a new company, Centro Retail Australia.

Blackstone Real Estate Partners VI LP, a unit of the world’s biggest private-equity firm, agreed to buy Centro’s 588 U.S. malls in March 2011 for $9.4 billion. Centro also agreed to swap part of its debt for 108 Australian properties.

IMF shares fell 2.9 percent to A$1.34 yesterday, while Centro Retail gained 0.4 percent to A$1.8475. Shares of both companies have been halted until the start of trading on May 10 or when an announcement is made.

The case is: Richard Kirby v. Centro Properties Ltd. VID326/2008. Federal Court of Australia (Melbourne).

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