THE Federal Court in Melbourne has formally approved Australia's biggest-ever 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 distributing a commission to the litigation funders, the shareholders are likely to share in a pool of just 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's 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' claims outweighed those of smaller shareholders.
He said clients and the firm were "absolutely delighted" with the settlement. 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 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 that it was having difficulties refinancing its short-term debt, the Australian stock exchange asked Centro about the accuracy of its 2006-07 accounts, triggering an internal review into all its debt.
Frequently Asked Questions about this Article…
What was the Centro class action settlement and why does it matter to investors?
The Federal Court approved a landmark $200 million class action settlement for Centro shareholders — the biggest-ever in Australia. It ends more than four years of litigation involving almost 6,000 institutional and retail shareholders and compensates investors for problems arising from errors in Centro's 2006–07 accounts.
How much of the $200 million settlement will shareholders actually receive?
After legal costs and a commission to the litigation funders are paid, shareholders are likely to share in a pool of just more than $120 million from the $200 million settlement.
Who is paying the $200 million Centro settlement?
Of the $200 million, $67 million will be paid by PricewaterhouseCoopers (PwC) — which admitted certain negligence in its audit of Centro's 2006–07 accounts — and the remaining $133 million will be paid by Centro-related companies.
What audit failures led to the Centro class action?
Centro's 2006–07 accounts included major mistakes: more than $3 billion of short-term debt was wrongly classified as long-term debt, and important guarantees Centro made for a US associate after the balance date were not disclosed. PwC later admitted some negligence in how it handled that audit.
Who represented the shareholders in the Centro class actions and who funded them?
Law firm Slater & Gordon represented about 5,000 individual shareholders, while Maurice Blackburn ran a separate class action funded by IMF. IMF said it will recoup $42 million from the settlement.
When will Centro shareholders get their settlement payments?
Lawyer Toby Borgeest of Slater & Gordon said cheques were expected to be sent by the end of the year, although exact timing will depend on finalising legal costs, distribution arrangements and the litigation funders' commission.
Did any shareholders object to the Centro settlement approved by the court?
No. The article says none of the shareholders participating in the class action objected to the settlement, and the judge found the deal fair and reasonable.
Could the Centro settlement change corporate behaviour and standards?
Observers including IMF and lawyers from Maurice Blackburn said the settlement should send a strong message to improve corporate standards and may have a positive effect on corporate behaviour in Australia — though they cautioned it won't by itself end poor conduct.
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