Bellamy's faces class action

If newly appointed Bellamy's (ASX:BAL) CEO Andrew Cohen didn't already have enough on his plate, he certainly does now after litigation funder IMF Bentham (ASX:IMF) today announced it will fund a proposed class action against Bellamy's. The proposed class action will be conducted by Slater & Gordon (ASX:SGH) and has been launched on behalf of current and former Bellamy's shareholders.

While it's still possible the class action won't proceed, the market responded negatively to the announcement, pushing Bellamy's shares down 4%, to close the day at $3.85.

This is the first of what may be several class actions against Bellamy's, as Maurice Blackburn is also looking to proceed with a class action.

According to IMF Bentham, ‘the claims relate to alleged misleading or deceptive conduct and an alleged breach by Bellamy's of its continuous disclosure obligations, in connection with its trading prospects and future earnings performance during the period between 14 April 2016 to 9 December 2016'.

The proposed class action follows a torrid two months for Bellamy's after it shocked the market in early December with a surprise revenue and profit downgrade. Shortly after, the company requested a month-long trading suspension in order to renegotiate an onerous ‘take or pay' supply agreement it has with Fonterra (NZX:FCG).

Bellamy's emerged from the trading suspension to reveal that inventory levels had ballooned to between $105m and $110m, and that it would be required to pay around $12m a year in shortfall payments to its suppliers including Fonterra. The company also further downgraded its 2017 estimated profit. 

The company also faces the uncertainty of an Extraordinary General Meeting scheduled for 28 February. Shareholders who own 35% of Bellamy's shares want to remove four board members and replace them with their own representatives. These shareholders include Jan Cameron (co-founder of Kathmandu (ASX:KMD)) and the mysterious Black Prince Private foundation.

With the continued level of turmoil at the company and all the associated risks, it is hard to see any light at the end of the tunnel for Bellamy's.