THE Federal Court in Melbourne has formally approved Australia's biggest settlement in a class action, a $200 million deal for Centro shareholders, bringing to an end more than four years of complex and expensive litigation.
In a brief hearing yesterday, Justice John Middleton said he was satisfied that the deal, covering almost 6000 institutional and retail shareholders in two class actions, was fair and reasonable.
Of the $200 million, $67 million will be paid by Centro's former and long-time auditing firm, PricewaterhouseCoopers, which made certain admissions about negligence in the way it handled the audit of Centro's 2006-07 accounts.
The balance of $133 million will be paid by Centro-related companies. After legal costs and after distributing a commission to the litigation funders, the shareholders are likely to share in a pool of a little more than $120 million.
Lawyer Toby Borgeest of Slater & Gordon, which represented about 5000 individual shareholders, said cheques were expected to be sent by the end of the year.
IMF, which funded a class action run by law firm Maurice Blackburn, confirmed to the stock exchange that it will recoup $42 million from the settlement.
Outside the court, IMF investment manager Wayne Attrill said while the outcome in the Centro case was likely to have a positive effect on corporate behaviour in Australia it would not by itself put an end to poor conduct.
Lawyer Martin Hyde of Maurice Blackburn said there was a lot of pressure on companies in tough economic times, and while most companies would never find themselves the subject of a class action, the settlement in Centro would send a strong message to improve corporate standards generally.
Mr Hyde said the overwhelming number of claimants in the Centro settlement were retail shareholders, although the value of superannuation funds's claims outweighed those of smaller shareholders. He said clients and the firm were "absolutely delighted".
None of the shareholders participating in the class action objected to the settlement.
PwC declined to comment yesterday.
In his brief decision, Justice Middleton said reaching a deal must have been difficult "not just because of the complex legal and factual issues involved, but because of the changing events occurring in the marketplace whilst the trial was in progress".
Justice Middleton noted that if the case had continued the final determination would hinge on difficult and controversial aspects of law "and appeals would be inevitable".
"Such a process brings greater uncertainty to recovery, and would involve substantial delay even if liability were to be established," he said.
Centro's 2006-07 accounts included several significant mistakes, notably more than $3 billion of short-term debt was wrongly classified as long-term debt and crucial details about guarantees Centro made in favour of a US-based associate company after balance date were not disclosed in the accounts.
When Centro admitted in December 2007 it was having difficulties refinancing its short-term debt, the stock exchange asked Centro about the accuracy of its 2006-07 accounts, triggering an internal review at Centro of its debt.
Frequently Asked Questions about this Article…
What was the Centro class action settlement approved by the Federal Court?
The Federal Court in Melbourne approved a $200 million settlement — Australia’s largest class action settlement at the time — resolving two class actions that together covered almost 6,000 institutional and retail Centro shareholders. Justice John Middleton found the deal fair and reasonable.
Who is paying the $200 million Centro settlement and why?
Of the $200 million, $67 million will be paid by Centro’s former auditor PricewaterhouseCoopers (PwC), which made admissions about negligence in its audit of Centro’s 2006–07 accounts. The remaining $133 million will be paid by Centro-related companies.
How much money will shareholders actually share after legal fees and funder commissions?
After legal costs and a commission paid to the litigation funders, shareholders are expected to share a pool of a little more than $120 million from the settlement.
When can Centro shareholders expect to receive their settlement cheques?
Lawyer Toby Borgeest of Slater & Gordon said cheques were expected to be sent to shareholders by the end of the year.
Did litigation funders recover costs from the Centro settlement?
Yes. IMF, which funded a class action run by Maurice Blackburn, confirmed to the stock exchange that it will recoup $42 million from the settlement. Other funder commissions and legal costs will also be paid from the settlement pool.
What accounting errors in Centro’s 2006–07 accounts led to the class action?
Centro’s 2006–07 accounts contained significant mistakes: more than $3 billion of short‑term debt was wrongly classified as long‑term debt, and guarantees made in favour of a US‑based associate after the balance date were not disclosed. These issues were highlighted after Centro admitted refinancing problems in December 2007.
Why did the court approve a settlement instead of letting the trial continue?
Justice Middleton said continuing the trial would have involved difficult and controversial legal issues, inevitable appeals, greater uncertainty about recovery and substantial delay. He found the negotiated settlement reduced that uncertainty and was fair and reasonable for claimants.
What does the Centro settlement mean for corporate behaviour and investor protection?
Observers in the case said the settlement should send a strong message to improve corporate standards. IMF’s Wayne Attrill said the outcome may positively influence corporate behaviour but won’t eliminate poor conduct by itself, while Maurice Blackburn’s Martin Hyde said the decision would encourage better corporate standards, especially during tough economic times.
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