Woolworths may face $100m class action

With support from shareholders.

Investors hit by a Woolworths share price dive on the back of a shock profit downgrade are preparing to launch a shareholder class action against the retail and supermarket giant, levelling serious allegations of breaches of the Corporations Act.

Sydney-based law firm, Maurice Blackburn Lawyers, with support from litigation funding giant IMF Bentham, is proposing to run a shareholder class action that could well exceed $100 million, on behalf of Woolworths’ investors who suffered losses due to alleged breaches of disclosure obligations.

Subject to sufficient interest from affected Woolworths shareholders and the completion of further investigations, a shareholder class action run by Maurice Blackburn with the support of IMF Bentham is proposed against Woolworths on behalf of investors who acquired shares in Woolworths anytime between 27 November 2014 and 26 February 2015 and held at least some or all of those shares at the commencement of trading on 27 February 2015.

Maurice Blackburn class action principal, Andrew Watson said there is reason to believe that Woolworths did not have a reasonable basis for providing its original profit guidance for FY15 and was misleading between 27 November 2014 and 26 February 2015.

“It is one thing for supermarket giants to drive down the prices on their shelves, but when they take actions that drive the share price down and they don’t make timely information available to shareholders about that, then they’ve got a problem.” Watson said.

“When corporations don’t abide by the laws requiring they make timely and accurate market disclosures, these aren’t mere technical breaches – it undermines the integrity of the market and distort the efficient allocation of capital that could go to more deserving companies.

“The end result is that shareholders, both individual everyday Australians and large institutional investors entrusted with members’ savings such as large superannuation funds, unwittingly suffer the consequences and lose out in a major way.

“There are only five shareholder class actions in this country that have settled for in excess of $100 million, and we have run all of them. We believe this case has the very real potential to be in that upper echelon if it is supported by aggrieved shareholders, who can register their interest from today.”

Senior Investment Manager at IMF Bentham, Wayne Attrill, said that like all shareholder class actions that attracted litigation funding, it was a market-based response to a market-based issue and would only proceed if enough shareholders supported seeking redress.

“This is a chance for investors who were deprived of information on the true state of affairs of the company standing up and being able to access a meaningful redress mechanism whilst sending a strong message to the company that such breaches aren’t acceptable,” Attrill said.

“A strong culture of good corporate conduct is as important as ever when it comes to attracting future investment in our economy, and strong enforcement mechanisms through the public regulator and private redress via class actions help reinforce that message.”

In a statement released to the ASX on Tuesday, Woolworths noted the market announcement by IMF Bentham that it proposes to fund, on a conditional basis, a shareholder class action against the company.

“The company has not been served with proceedings. Woolworths considers that it has, at all times, complied with its continuous disclosure obligations. If proceedings are commenced they will be defended on this basis,” the statement read.

Background to the allegations

29 August 2014: Woolworths provides guidance that FY15 NPAT expected to increase 4% to 7%.

8 October 2014: Woolworths was aware of significant risks to forecast profit.  Its defence in ACCC proceedings admits that it:
Forecast that there would be a variance on budget for gross profit before freight for the Woolworths Supermarkets business, for the half year to 31 December 2014, in the amount of approximately $53 million…”

21 November 2014: Commercial director of Woolworths Supermarkets instructs internal team to identify ways in which Woolworths could mitigate the risk that the supermarkets business would not meet its budgeted gross profit for the half year ending 31 December 2014.

27 November 2014 Guidance emphatically reaffirmed at the Woolworths Annual General Meeting at which then chairman Ralph Waters stated:
“Earlier in the year management provided guidance for the 2015 financial year of growth in net profit after tax of between 4% and 7%. Following a recent review by the Board, I am pleased to reaffirm our previous guidance today.”

27 February 2015: Woolworths announced that it was downgrading its previously issued guidance of growth in its Net Profit After Tax (NPAT) of 4% to 7% for Financial Year 2015.

Maurice Blackburn recently launched a class action against Thorn Group’s Radio Rentals.

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