Class Action in the works?
Ten's board failed to update market for four weeks after Packer walked
The directors of Network Ten knew for at least four weeks before the company's collapse that James Packer's Consolidated Press Holdings was not going to guarantee a new company loan but failed to pass this information on to shareholders.
Fairfax Media has confirmed Ten was advised in early May that Mr Packer was not willing to guarantee future financing options crucial to the network's survival.
Mr Packer's news arrived just days
after directors had told shareholders there was a "material uncertainty" about Ten's ability to continue as a going concern unless it could secure a new loan facility.
Shareholders have called for regulators to examine this lack of disclosure, while experts say it could be grounds for a class action.
Ten's existing $200 million facility with Commonwealth Bank expires on December 23 and the board wanted to increase this to $250 million.
"In order to secure a new facility of the size required, the directors consider that the group is reliant on the provision of sufficient further guarantees by shareholder guarantors and/or new financiers," the board wrote on April 27, as its half-year results revealed a $2.4 million loss and a $214.5 million TV licence impairment.
"The group understands from discussions with shareholder guarantors that it needs to demonstrate the potential for improved future earnings in order for a new facility to be guaranteed."
The shareholder guarantors are Mr Packer's CPH, Lachlan Murdoch's Illyria Nominees and Bruce Gordon's Birketu Pty Ltd. All three also owned significant stakes in Network Ten before it was placed into administration.
Despite highlighting the importance of the guarantor's participation in the company's future, the board did not keep shareholders updated of Mr Packer's intentions.
A spokesman for the broadcaster said: "Ten Network meets its continuous disclosure obligations on a continuing basis."
While CPH declined to comment, Fairfax Media has confirmed with two sources, including the current administrators of Network Ten, that the board was advised of CPH's intentions several weeks before shares went into a trading halt.
"In May, CPH advised the company they would not participate in the re-finance due in December," a spokesman for KordaMentha said.
Shareholders received no information from the company between the results on April 27 and the June 13 trading halt.
There were market announcements from major shareholder Lazard Asset Management Pacific Co that it was selling down from a 10 per cent shareholding. There was also a pricing query on May 26 from the Australian Securities Exchange when shares reached a low of 16.5c but in its response Ten still did not mention it had lost one of its three financial backers.
"On the face of it, it appears to be material [information] and no announcement was made," president of the Australian Shareholders Association Judith Fox said, adding market regulators should examine Ten's disclosures in relation to CPH's withdrawal.
"It either falls within the carve-outs [of listing rules] or it doesn't, and there could be a breach."
Legal adviser for Birketu, John Atanaskovic, queried Ten's lack of disclosure
during a fiery email exchange with lawyers acting for KordaMentha, according to documents recently released by the Federal Court.
In criticising Ten's management Mr Atanaskovic noted Ten received formal indication from the third shareholder it was unprepared to continue and "the unexplained failure by Ten at the time to disclose this publicly (as at least arguably required pursuant to ASX and statutory continuous disclosure rules".
A spokesman for the ASX said it was satisfied with Ten's response to the pricing query.
"The obligation to keep the market appropriately informed rests with the company," he said.
Meanwhile professor of Economics at University of Wollongong and expert witness in several class actions, Alex Frino, said companies have to reveal information that may affect share prices.
"Information on financing would seem to me to be information that Ten Network should have disclosed under the ASX listing rules," Professor Frino said.
"They should probably have told the market as soon as they became aware that one of three historical backers had pulled out. I would not be surprised if in the near future we saw a class action that was launched against the entity."
Ten finally announced on June 13 that Birketu and Illyria were withdrawing their financial backing – but still did not mention CPH – and requested time to consider Ten's position. The next day directors placed Ten in the hands of voluntary administrators.
Meanwhile, Illyria and Birketu have since
asked the competition regulator for approval to buy Ten, a move that will only be possible if media laws are changed.
Timeline: Troubles at Ten
February 16 Ten issues profit warning.
March 8 Media speculation James Packer been trying to sell his shares in Ten.
April 27 Ten reports half-year underlying loss of $2.4 million.Warns ‘material uncertainty’ Ten can continue unless guarantors including Packer help renew $250 million loan.
April 29 Media report that Packer likely to ‘walk away’ as guarantor.
Early May Packer’s company informs Ten’s board will not act as guarantor.
May 26 Ten receives query from ASX about falling share price. Ten replies unaware of any reason for fall but notes investor (Lazard) has been selling out.
June 9 Lachlan Murdoch’s Illyria and Bruce Gordon’s Birketu inform Ten’s board they will not continue as guarantors.
June 11 Fairfax Media reports Illyria and Birketu will not support a new loan.
June 13 Ten in trading halt tells shareholders Illyria and Birketu will not be guarantors. No mention of CPH.
June 14 Ten placed in voluntary administration. Board says Illyria and Birketu left it 'no choice but to appoint administrators'.
Senior associate at Slater and Gordon, Andrew Paull, said Ten's board had an obligation to keep shareholders informed.
"This sounds like the type of information that could be relevant to the trading price of this company's securities," he said.
"[However] companies may not be required to disclose information if it concerns an incomplete proposal and is confidential."
He added that Ten could have requested a trading halt as soon as it heard from Mr Packer, given the company's financial difficulties and the amount of speculation and uncertainty surrounding the company at the time.
