On 22 May 2020, the parties to the Spotless Class Action announced that they had reached an agreement to settle the proceeding against Spotless. Under the agreement, Spotless will pay a total of $95 million, inclusive of interests and cost, to settle the claims of Group Members in the Spotless Class Action.
The hearing of the settlement approval application took place on 2 September 2020 before the Honourable Justice Murphy of the Federal Court of Australia.
Having been satisfied that the settlement is fair and reasonable and in the interests of Group Members as a whole, Justice Murphy has now made orders approving the settlement of the proceeding. A copy of the Orders is available to download below.
We currently anticipate that Slater and Gordon will commence distributing the Settlement Sum to Registered Group Members in late October to early November 2020. All Registered Group Members will be contacted by Slater and Gordon in the coming weeks to obtain details to facilitate distribution of the Settlement Sum.
What is the Spotless Class Action about?
The Spotless Class Action was issued by Slater and Gordon on behalf of Ms Alison Court as the lead applicant and group members who:
- acquired an interest in ordinary shares in Spotless (SPO Shares); or
- entered into equity swap confirmations in respect of ordinary shares in Spotless (SPO Equity Swaps);
between 25 August 2015 and 1 December 2015 (inclusive), and have suffered loss or damage (Group Members).
The central allegations made in the Spotless Class Action are that Spotless misled the market by making a series of announcements without reasonable basis; and failed to disclose to the market operator information that had a material effect on the price or value of SPO Shares.
The Spotless class action is funded by Therium Litigation Finance AF IC, ICP Capital Pty Ltd and Investor Claim Partner Pty Ltd.
Background to claim
In August 2012, Spotless was acquired for approximately $720 million by a private equity consortium led by Pacific Equity Partners (PEP).
Under PEP, the company returned $302 million in equity to its shareholders, before relisting on the ASX in May 2014 with a valuation of approximately $2 billion.
On 25 August 2015, Spotless released its results for the financial year ending 30 June 2015 (FY15 Results). The results were earnings before interest, depreciation, taxation and amortisation (EBITDA) of $316.4m and reported net profit after tax (NPAT) of $142.8m. This was consistent with the forecasts provided for in the Prospectus issued in 2014. In a conference call with analysts outlining the FY15 Results, Spotless Chief Executive Officer (CEO), Bruce Dixon described Spotless as having “really solid momentum coming into the next year” and the FY15 turnaround as “sustainable”.
In giving guidance for the coming year, Spotless stated that it expected its results for the financial year ending 30 June 2016 (FY16) to “materially exceed” its FY15 results (across revenue, EBITDA and NPAT) and endorsed market consensus expectations for FY16 NPAT (broker consensus at the time was for FY16 NPAT of between $161m and 161.5m) (the FY16 Guidance).
On 25 August 2015, PEP sold down its remaining shares in the company through a block trade worth approximately $374 million. On the same day, a number of Spotless executives and board members also sold down significant blocks of shares.
In late September 2015, Vita Pepe retired as Spotless’ COO.
On 22 October 2015, Spotless held its Annual General Meeting (AGM). Spotless’ Chair, Margaret Jackson, stated at the AGM that Spotless was “well placed to continue delivering value for shareholders” and repeated the FY16 Guidance.
In late November 2015, Bruce Dixon stepped down as CEO and was replaced by former KPMG partner Martin Sheppard.
On 2 December 2015, Spotless withdrew the FY16 Guidance, issuing the FY16 Profit Downgrade (the First Trading Update).
In the following days, Spotless responded to an ASX price query, and issued a market update on 9 December 2015 (the Second Trading Update) which sought to explain the FY16 Profit Downgrade. The Second Trading Update attributed the causes of the FY16 Profit Downgrade to one-off FY16 costs not being absorbed by new business wins, acquisition integration issues and underperformance and a general market conditions.
The market’s reaction to the FY16 Profit Downgrade was severe, with Spotless’ share price falling by approximately 50% in the following days. The Second Trading Update did not lead to a material recovery in Spotless’ share price.
Slater and Gordon’s class action alleges that, at the time of giving the FY16 Guidance on 25 August 2015, Spotless was or ought to have been aware that:
- the FY15 Results were achieved, not through a ”sustainable” turnaround in the business, but though, in part, one-off financial adjustments, and did not provide a reliable base from which to forecast future earnings growth in FY16;
- the matters outlined in Spotless’ Second Trading Update on 9 December 2015 (which sought to explain the FY16 Profit Downgrade) were always likely to impact earnings in FY16;
- In particular, that:
- Spotless failed to account for the total amount of one-off financial items contributing to its FY15 Result when re-basing its forecasting for the FY16 Guidance;
- Spotless would be required to expense pre-contract bid costs in FY16 which has been capitalised in FY15, and that it would no longer be able to capitalise any further pre-contract bid costs in FY16 due to a change in accounting policy;
- Spotless’ internal forecasts for new business were overly optimistic, particularly in light of the cost cutting it had undertaken in its business development department which was crucial to winning new contracts;
- that businesses acquired by Spotless in FY15 were underperforming, and the integration plan for those businesses in FY16 was overly optimistic, such, that at all times during and after the claim period, Spotless was highly unlikely to be able to achieve its FY16 Guidance.
On this basis, it is alleged that during the claim period:
- Spotless engaged in misleading or deceptive conduct in contravention of section 1041H of the Corporations Act 2001 (Cth), by providing and maintaining the FY16 Guidance without reasonable grounds;
- Spotless contravened its obligations of continuous disclosure of price sensitive information under section 674 of the Corporations Act, by failing to withdraw the FY16 Guidance or to disclose the matters which made achieving that guidance highly unlikely, prior to 2 December 2015.
- Amended Originating Application (PDF, 432KB)
- Applicant's Third Further Amended Statement of Claim (PDF, 1186KB)
- Spotless' Defence to the Second Further Amended Statement of Claim (PDF, 3.25MB)
- VID561/2017 Common Fund Order (PDF, 373KB)
- VID561/2017 Orders of Justice Murphy (PDF, 258KB)
- Notice to Class Members (including Class Member Registration Form) dated 21 February 2020 (PDF, 328 KB)
- Orders of Justice Murphy dated 21 February 2020 (PDF, 620KB).
- Order of Justice Murphy dated 22 May 2020 (PDF, 247KB)
- Notice of Proposed Settlement (PDF, 161KB)
- Orders of Justice Murphy dated 9 September 2020 (PDF, 254KB)