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Leading law firm Slater and Gordon files class action against Spotless for allegedly misleading the market

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Leading class action law firm Slater and Gordon has today filed proceedings in the Federal Court of Australia against Spotless Group Holdings Ltd (SPO.AX) on behalf of aggrieved shareholders.

The class action is backed by litigation funding entrant Therium Australia Ltd and includes investors who acquired Spotless shares between 25 August 2015 and 1 December 2015 (inclusive).

Slater and Gordon Senior Associate Mathew Chuk said the claim will make fresh allegations against Spotless, including that it misled the market by issuing guidance for FY16 financial performance which lacked reasonable grounds.

“In August 2015, Spotless stated that its FY16 results would materially exceed the previous financial year,” Mr Chuk said.

“This included an endorsement of market consensus expectations of FY16 net profit after tax of $161.5 million.

“But just three months later, Spotless’ share price fell by approximately 50 per cent when the market reacted to the company unexpectedly pulling its FY16 guidance and issuing a profit downgrade.”

Mr Chuk said Spotless knew that it was highly unlikely to be able to achieve its FY16 guidance.

“Spotless explained its profit downgrade was based on problems with acquisition integration and underperformance, general market slowdown and expensing of previously capitalised bid costs,” Mr Chuk said.

“Our investigations have found that most of this information was available to the company months earlier.

“This class action alleges that Spotless should never have set market expectations so high in such circumstances.”

Investigations to date

The filed proceeding alleges that at the time of giving its FY16 guidance on 25 August 2015, Spotless was or ought to have been aware that:

  • its FY15 financial results did not provide a reliable base from which to forecast future earnings growth in FY16;
  • the matters outlined in the 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 businesses acquired by Spotless in FY15 were underperforming such that they were unlikely to deliver the earnings growth necessary to meet its FY16 guidance; and
  • further, it would be required to expense pre-contract bid costs in FY16 which had been capitalised in FY15;

such that, at all times during and after the claim period, Spotless was highly unlikely to be able to achieve its FY16 guidance.

The above matters support allegations made in the proceeding that, between 25 August 2015 and 1 December 2015:

  • Spotless engaged in misleading or deceptive conduct in contravention of section 1041H of the Corporations Act 2001 (Cth), by providing and maintaining FY16 guidance to the market without a reasonable basis;
  • Spotless contravened its obligations of continuous disclosure of price sensitive information under section 674 of the Corporations Act, by failing to withdraw its FY16 guidance or to disclose the matters which made achieving that guidance highly unlikely, prior to 2 December 2015; and
  • Spotless’ FY15 financial statements did not give a true and fair view of its financial position and performance in contravention of section 297 of the Corporations Act.

The proceeding is separate from and makes different allegations to a class action run by William Roberts Lawyers filed in the NSW Registry of the Federal Court.