The former boss of defence shipbuilder Austal, who is facing penalty proceedings by ASIC, has told a court the regulator’s case was based on information that fit within a carveout to the ASX listing rules on continuous dislosure to the market.
Counsel for former CEO David Singleton told Federal Court Justice Michael O’Bryan on Thursday that the Australian Securities and Investments Commission’s action appeared to rely on information in an email from the company’s CFO that was labelled ‘draft’, and was “insufficiently definite to warrant disclosure”.
ASIC brought the proceedings last month, accusing WA-based Austal and Singleton of breaches of the Corporations Act. ASIC alleges Austal failed to immediately disclose a material change in its earnings guidance of December 2015. The company told shareholders then that it expected its US shipbuilding business would generate profits in the 2016 financial year, but subsequently learned the company would record a significant loss.
Austal was allegedly aware from at least Saturday, June 4, 2016 that it was likely that a writeback of at least US$90 million was required, but it wasn’t until a month later that Austal announced a $156 million writeback of work in progress on the warship program and recorded a group EBIT loss of up to $121 million in FY2016.
ASIC claims that Austal breached its continuous disclosure obligations between June 6 and July 4, 2016 by failing to disclose the information on the writeback. Austal is also accused of engaging in misleading or deceptive conduct by failing to correct or withdraw its 2015 guidance. Singleton is accused of breaching the Corporations Act for his involvement in the continuous disclosure breaches and by failing to exercise reasonable care and diligence as a director.
According to ASIC’s concise statement, Singleton and former CFO Greg Jason were aware on June 4 that, among other things, the profit writeback would generate a loss of at least US$40m for the 2016 financial year for Austal USA.
Barrister Peter Collinson QC said Thursday the allegation appeared to be based on information in an email to Singleton from Jason on that date that related to the findings from an estimate-at-completion review analysis of the US Navy’s Littoral Combat Ship contract that was underway but not yet complete.
In calling for a detailed pleading from ASIC to replace the regulator’s seven-page concise statement, Collinson said his client did not follow the substance of the case, when the email contained “incomplete” information that was an exception to the listing rule.
“How is it put that this information generated a continuous disclosure obligation when it was at the protean stage on 4 of June,” he said. “We want to know what the case is.”
Counsel for ASIC Alistair Pound SC said providing a statement of claim or further material as particulars would not resolve the issue of whether or not the content of the email was exempted from disclosure rules.
Argument on the exclusion issue was “a matter for another day”, he added.
Justice O’Bryan agreed, saying he wasn’t persuaded a statement of claim would better promote procedural fairness and efficiency.
“It is important…that an individual defendant is able to properly appreciate the case that is made against him or her…but given the nature of the allegations that have been made I think there is so far a well crafted outline of the case,” he said.
“I understand Mr Collinson’s submission about the matters raised in relation to the exceptions…I’m inclined to think that is a matter ultimately for argument. ASIC has to state its case. Whether those facts as alleged based on the paragraphs as alleged come up to proof on the primary allegations is really an argument for another day.”
The case has been scheduled for a case management hearing on October 8.
In announcing the writeback on July 4, 2016, Austal said a contractual requirement to meet the US military shock standard and US naval vessel rules had caused a “significantly higher level of modifications to the ship design and cost than previously estimated”.
Austal derived up to 85 per cent of its total annual revenue from its wholly-owned US subsidiary at the time, according to ASIC. Austal USA was contracted to build 11 aluminium warships as part of the US Navy’s LCD program.
Austal said in an ASX statement in June that it would consider ASIC’s concise statement to the Federal Court “before deciding its next steps”.
ASIC is seeking declarations of breaches and pecunary penalties.
The case is Australian Securities and Investments Commission v Austal Limited & Anor.
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