The Australian Securities & Investments Commission (ASIC) has taken civil action against Padbury Mining and two of its directors over Padbury’s funding deals for the Oakajee port and rail project.
ASIC’s civil action in the Federal Court against the company, managing director Gary Stokes, and chairman Terry Quinn relates to the miner’s announcement last year that it had secured the massive $6 billion worth of funding needed for the infrastructure project.
The project itself was designed to open up the West Australian Mid West region, and enable the export of 35 to 45 million tonnes of iron ore, using cape sized vessels, supporting the growth of approximately 21 odd companies with iron ore interests in the region.
The initial announcement was released to the market in April last year, stating that Padbury has signed a deal with two anonymous partners in Asia to fund the development of the port and its infrastructure.
Even at the time, the WA premier Colin Barnett dismissed the likelihood of the Oakajee port development as ‘unrealistic’, stating that “there is little substance behind Padbury”.
Around this time the backers were revealed not to be Asian conglomerates, but were in fact two companies – Superkite and Alliance Super Holdings – controlled by Sydney businessman Ronald Blyer.
After this reveal Padbury promised the market on several occasions it would reveal the funding details of the deal struck up with Bleyer’s companies including details of any shareholder approvals required and details of any security Padbury was required to front up to obtain the money.
The company then missed its self-imposed deadlines before a final statement confirmed the deal was dud.
The day after announcing the abolishment of the funding agreement Padbury answered a number of questions put to it by the ASX and ASIC over the botched deal.
The company said it should have told investors that it was required to obtain a bank issue demand guarantee for 20 per cent of the $6.5 billion funding package to build Oakajee.
It also said the initial announcement was not reviewed by an external legal counsel and that the company only had 40 days to come up with the bank guarantee of 20 per cent, an aspect of the deal not revealed to investors.
Soon after the deception was revealed a class action was launched by investors who bought shares in Padbury following the announcement of the spurious deal.
Shares in Padbury rose 170 per cent after the deal was announced, with around 200 million shares exchanged.
One Padbury shareholder said he had signed up 50 investors angry at the company for misleading the market.
He said investor losses range from $5000 to $80,000.
“It’s not just about the money, it’s about the reputation of the market which is being manipulated day in and day out,” the man said.
“Someone’s head needs go on the chopping block over this.”
Now ASIC is taking its own legal steps, alleging that “the announcement was misleading because the funding agreement was subject to conditions precedent that had not yet been met; the conditions precedent required Padbury to procure some $1.3 billion in demand guarantees in three tranches.
”The company breached its continuous disclosure obligations by failing to disclose the conditions precedent, and by failing to disclose the identity of the funding providers,” ASIC stated in its case.
ASIC further alleges that the company was in breach by failing to disclose the identity of the funding providers together with the fact that it had not independently verified the capacity of those providers to provide the funds.
“The directors were involved in the breach by the company of its continuous disclosure obligations and thereby breached their own continuous disclosure obligations in the Corporations Act,” it said.
“The directors breached their duties of care and diligence by causing or otherwise permitting the company to make a misleading announcement and also by failing to ensure the company met its continuous disclosure obligations.”
ASIC stated it is seeking financial penalties again Stokes and Quinn, and looking to ban them from managing companies in the future.
The case will head to court on July 15th.