AFG 4.40% $2.39 australian finance group ltd

suggestions of class action

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    Class action looms over Allco debt

    From fairfax by Stuart Washington

    ALLCO Finance Group's massive level of previously undisclosed current liabilities has been blasted by analysts and potential class action litigators.

    And speculation swirled that lenders had moved to sell more than 50 million Allco shares used as security for a loan to Allco Principals Trust, which is largely owned by Allco executives, including the executive chairman, David Coe.

    A spokesman for National Australia Bank, which has a $110 million loan over the shares, refused to comment. On Monday Allco disclosed that it has $3.5 billion in liabilities that may need to be repaid this year, out of almost $6.5 billion in total borrowings.

    In last year's annual report, Allco's auditor, KPMG, signed the company's accounts showing current liabilities of $200 million. But Monday's interim report showed Allco never disclosed it had $2 billion of current liabilities in June last year.

    Nor did Allco reveal in December that $900 million in loans from a banking syndicate had become a current liability, with the potential for the banks to ask for repayment within 90 days after its market capitalisation fell below a key trigger level.

    Asked about the apparent failure to include current liabilities in the annual report, David Burstyner, a partner with law firm Maurice Blackburn, said: "If that was the case, we would think that was a case of non-disclosure, which is actionable."

    Breaches of disclosure are regulated by the Australian Securities Exchange, the Australian Securities and Investments Commission and can be used as the basis of class actions for damages by investors.

    UBS analysts Chris Williams and Jonathon Mott yesterday suspended coverage on Allco, citing conditions on its $900 million loan and the $2.3 billion in current liabilities, as well as KPMG's concerns about Allco's ability to operate as a going concern. "We have suspended coverage of AFG until further clarity over its ongoing financial position and ability to continue as a going concern becomes available," they said.

    The size of the undisclosed current liabilities raises questions about whether Allco's accounts have abided by Australian accounting standards, opening Allco and the auditor to scrutiny.

    Accounting standards, which form part of the Corporations Act, contain a clear definition of current liabilities that are required to be reported to allow investors to assess the extent of debts falling due within a 12 month period.

    There are very few exceptions from a basic set of conditions. "If it satisfies any of those conditions it's a current liability," Mark Shying, a senior policy adviser for CPA Australia, said.

    KPMG refused to answer questions about the previously undisclosed current liabilities, including whether it knew about the liabilities and, if it did, why they were not included in the accounts.

    "Clearly the result came as a shock," said Rob Patterson, Argo Investments managing director. "One has to look at it and make a judgment of whether they will pull through." Mr Patterson said the threat of banks moving in on AFG was "very close"
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