ob体育 has today commenced proceedings in the Federal Court against Austal Limited (ASX:ASB) (Austal) and its former CEO, David Singleton, for alleged breaches of the Corporations Act (the Act) and ob体育 Act.
ob体育鈥檚 proceedings involve an alleged failure by Austal to immediately disclose to the market a material change in its prior earnings guidance. Austal had represented that it expected its US shipbuilding business would be profitable in FY2016, but subsequently became aware that it would likely generate a significant loss.
On 10 December 2015, Austal provided earnings guidance and represented that it expected its US shipbuilding business to be profitable in FY2016. Austal represented that it expected its US shipbuilding EBIT (Earnings Before Interest and Tax) margin to be in the range of 4.5% - 6.5% in FY2016 and to see margin improvement on its approximately $3.5 billion US Navy LCS warship program. The US shipbuilding EBIT margin is a measure of operating profit as a percentage of revenue from Austal鈥檚 US shipbuilding business. The company affirmed its earnings guidance on 23 February 2016.
ob体育 alleges that from at least 4 June 2016 (a Saturday), Austal was aware that it was likely that a writeback was required of at least US$90m, which would generate a significant loss to Austal USA and/or Austal in FY2016.
Before market open on 4 July 2016, Austal announced that it would report a US$115m (AU$156m) writeback of work in progress on the LCS program and record a statutory group EBIT loss in the range of AU$(116) 鈥� (121)m in FY2016.
ob体育 alleges that Austal breached its continuous disclosure obligations under s674(2) of the Act between 6 June and 4 July 2016 by failing to disclose聽 that a writeback of at least US$90m was likely required and that this would generate a significant loss. ob体育 also alleges that Austal engaged in misleading or deceptive conduct in breach of s1041H(1) of the Act and/or s12DA of the ob体育 Act by failing to correct or withdraw its previous guidance.
ob体育 alleges Mr Singleton, Austal鈥檚 CEO at the time of the alleged misconduct, contravened sections 180(1) and 674(2A) of the Act for his involvement in Austal鈥檚 continuous disclosure contravention and by failing to exercise reasonable care and diligence as a director of Austal.
ob体育 is seeking declarations and pecuniary penalties from the Federal Court.
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Background
Austal is a listed Australian shipbuilding company that operates globally, including in the USA and Australia with its head office in Henderson, Western Australia.
In FY2016, when ob体育 alleges the relevant contraventions occurred, Austal derived 80鈥�85% of its total annual revenue from its wholly-owned US subsidiary Austal USA, LLC (Austal USA). At that time, Austal USA had two major shipbuilding contracts with the US Navy, including the construction of eleven fully aluminium warships known as the Littoral Combat Ship (LCS) program. The LCS program was in the early stages of construction with the first of the LCS vessels delivered in August 2015 and a second vessel delivered in late FY2016. The other LCS vessels were at various stages of construction with some being constructed concurrently.
ob体育 wishes to acknowledge the assistance of US Securities Exchange Commission for their cooperation during this investigation.
Editor's note:
The first case management hearing has been listed for 8 July 2021.
Editor's note 2:
A further case management hearing has been listed for 8 October 2021.
Editor's note 3:
The matter has been listed for further case management on 25 March 2022.聽
Editor's note 4:
A further case management hearing has been listed for 12 September 2022 with a trial to be held during the fortnight commencing 3 October 2022. 聽
Editor's note 5:
On 10 October 2022, Justice O鈥橞ryan of the Federal Court declared that Austal Ltd (Austal) contravened s674(2) of the Corporations Act (continuous disclosure) on one occasion from 16 June 2016 and continuing to 4 July 2016, and that David Singleton (Austal鈥檚 former CEO) contravened s674(2A) on one occasion from 16 June 2016 and continuing to 4 July 2016 by reason of being knowingly concerned in Austal鈥檚 contravention.
In respect of the contraventions, Justice O鈥橞ryan ordered that:
- Austal pay a pecuniary penalty of $650,000 to the Commonwealth of Australia;
- Mr Singleton pay a pecuniary penalty of $650,000 to the Commonwealth of Australia;
- Austal and Mr Singleton pay a contribution to ob体育鈥檚 costs in a lump sum of $500,000.