Class action against UGL back on track amid investor anger over Itcthys disclosure
A class action alleging contractor UGL delayed informing investors about cost blowouts on a power plant contract for INPEX’s Ichthys gas project in late 2014 will proceed with investment group Clime Capital as the representative applicant.
The action, which has been under consideration for more than a year, will claim tens of millions of dollars for losses suffered by investors after UGL’s stock slumped in November 2014 after it revealed problems with the power contract.
Investors have previously asked the Australian Securities and Investments Commission (ASIC) to investigate UGL’s failure to disclose the cost blowouts, given its joint venture partner CH2M Hill had said in a filing to the US Securities and Exchange Commission in August 2014 that it was worried about rising costs and the potential for liquidated damages.
“We would welcome ASIC talking to us about the action and are a little bit perplexed why they haven’t,” said John Abernethy, chairman of Clime Capital.
The class action was initially considered by Slater & Gordon in 2016, but was delayed by the departure of lawyers who established their own boutique firm, Phi Finney McDonald.
IMF Bentham will fund the claim and Phi Finney McDonald will represent Clime Capital, which acquired several million shares in UGL before it announced it had taken a $US170 million provision on the contract. It later announced further large writedowns.
UGL is now owned by construction group CIMIC, which walked away from the power contract in February 2017 after buying the smaller contractor in a hostile takeover in late 2016. Former UGL chairman Kate Spargo is now a non-executive director on CIMIC’s board.
Participants in the class action believe they have a strong case, because other firms such as Credit Corp have been forced to settle actions alleging breaches of continuous disclosure obligations. UGL was aware its US joint venture partner, CH2M Hill, was considering taking provisions on the $550 million power plant contract at least a month before the Australian contractor informed shareholders on November 6, 2014, that it was facing cost blowouts due to delays.
UGL’s stock fell almost 15 per cent on November 6, losing $1.01 to $5.89 after it disclosed the additional costs. The stock fell further in subsequent days.
The class action will allege that during the claim period, UGL failed to keep the market informed about problems on the power plant contract.
Former UGL chief executive Richard Leupen had previously told analysts at a briefing following the company’s annual results on August 24, 2014, that all costs related to the Ichthys gas project had been taken “into account” and that he was not aware of any problems.
LIke UGL, CH2M Hill has subsequently been acquired by a bigger company, with US engineering group Jacobs buying the smaller American firm in August.
Both CIMIC and Jacobs have strong balance sheets, enabling them to easily settle class actions.
Phi Finney McDonald director Odette McDonald said shareholder class actions had played “an important role” in improving corporate governance practices of listed entities.
“The willingness of Clime, an institutional investor, to take such an active role in this matter is a further positive step in the right direction,” Ms McDonald said.
The class action has not yet been filed in court.
Key pointsInvestors will allege UGL breached its continuous disclosure obligations.
The class action has not yet been filed in court, but the participants are confident.