Shareholder win sparks warning on D&O adequacy
A successful shareholder class action against logistics giant Brambles has raised the risk of more lawsuits and potential losses against directors and officers cover, experts say.
The Federal Court this month set a precedent in finding against Brambles on both liability and loss; previous class actions have failed on either matter or settled before judgment.
The action represented investors who bought shares in Brambles between August 18 2016 and February 17 2017, and related to earnings guidance and statements the company gave the Australian Securities Exchange in 2016 for the 2017 financial year.
In January 2017 Brambles withdrew its earlier guidance and that February it withdrew its 2019 financial year targets. The company’s shares fell significantly both times.
Shareholders alleged Brambles engaged in misleading and deceptive conduct, which led to them buying their shares at inflated prices.
After a five-week trial, Justice Bernard Murphy found Brambles did engage in misleading or deceptive conduct for the 2017 forecasts, “as it had made representations in respect of future matters for which [it] lacked reasonable grounds”.
Brambles breached obligations for timely disclosure to the ASX under the Corporations Act, he said.
Law firm Bellrock says the judgment should send a warning to listed companies to consider the adequacy of their policy limits for D&O cover as it applies to the costs of defending a securities claim.
The cost of defending a class action, even if it settles, show “the question is not whether insurance exists but whether it is sufficient in light of modern class action dynamics”, Bellrock practice leader for executive and professional risk Landis Michaels says.
He believes settlement figures understate the true cost of class actions, which could be $20 million if contested by a top-tier firm, up to $15 million if settled before trial or even $6 million for early mediation.
Find the judgment here.
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