Centro Retail Australia, formed from a mall manager’s reorganization, and PricewaterhouseCoopers agreed in principle to a settlement of A$200 million ($202) million with Centro shareholders who claimed they were misled.
Martin Hyde, a class-action lawyer at Maurice Blackburn Lawyers, one of the firms filing the litigation, announced the settlement at a news conference in Melbourne today. The litigants have until tomorrow to complete the details of the agreement or a trial will continue, Hyde said.
“This sends a strong message to corporations and their advisers that they will be held accountable to shareholders if their conduct fell short of what the law requires,” Hyde said.
A 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 Melbourne-based mall manager, claimed the company misled them over its debts. Class-action lawsuits filed by Maurice Blackburn and Slater & Gordon Lawyers were being tried together, while accounting firm PricewaterhouseCoopers was also sued for failing to audit the company properly.
“It’s a groundbreaking settlement” and shows Australia is gaining international prominence as a venue for shareholder class actions, Ian Ramsay, a professor of commercial law at the University of Melbourne, said in a telephone interview before the announcement. The A$200 million is the biggest payout ever in a shareholder suit in Australia, Ramsay said.
The Maurice Blackburn litigation was funded by IMF (Australia) Ltd., whose shares jumped 9 percent to A$1.46 at the close of trading in Sydney, the most since May 2010. Centro Retail yesterday rose 0.4 percent to A$1.8475 in Sydney, before trading was halted.
The settlement also should put accounting firms on notice they’ll be held responsible if they fail to “blow the whistle” on directors if they notice something wrong, John Walker, executive director at IMF, said in a phone interview today.
PricewaterhouseCoopers didn’t respond to a request for comment today.
Maurice Blackburn’s clients will receive A$150 million and Slater & Gordon’s clients will get A$50 million, according to the agreement, Hyde said.
The settlement covers more than 1,000 individual and group shareholders, including some of “the country’s largest financial institutions,” Hyde said. The settlement also covers about 5,000 individuals and retirees, represented by Slater & Gordon, the law firm said in a statement today.
The cost of the trial was probably about A$500,000 a day, Hyde said.
Several of Centro’s former directors and executives were found liable in 2011 for releasing 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. Four other former directors and two who were directors at the time of the Aug. 31 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 a ruling in June. The mall manager also didn’t disclose A$500 million of short-term debt at one of its units, he said.
Centro shares fell 76 percent in Sydney on Dec. 17, 2007 after the company said it was struggling to refinance debt because of the collapse of the subprime mortgage market. The share slump wiped A$4.98 billion from the market value of Centro Properties Group and Centro Retail Group at the time.
The company 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. That left Centro 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.
The previous record shareholder settlement in Australia took place in 2008, when Aristocrat Leisure Ltd.’s investors received A$144 million, Ramsay said.
The case is: Richard Kirby v. Centro Properties Ltd. VID326/2008. Federal Court of Australia (Melbourne).