Maurice Blackburn

Maurice Blackburn shareholder action against Gunns Ltd

On 20 April 2011 Maurice Blackburn filed legal proceedings in the Federal Court of Australia in Sydney against listed Tasmanian woodchip company, Gunns Limited. The claim was lodged on behalf of over 300 shareholders and concerns Gunns' failure to disclose material information regarding a significant deterioration in its likely financial performance for the six month period ending 31 December 2009 (1H2010), prior to formally reporting those results on 22 February 2010.

During the course of the 2009 calendar year difficult trading conditions meant that Gunns exported reduced volumes of woodchips at reduced margins as compared with previous periods. However, it was not until 22 February 2010 that Gunns told investors its net profit after tax (NPAT) for 1H2010 was only $420,000, down by over $33m, (or 98.7%) on the $33.6 million NPAT reported in the corresponding first half period in 2009.

In bringing the claim, shareholders allege that Gunns should have warned the market by 31 August 2009 that its financial results for 1H2010 were going to be dismal. By then Gunns was aware that its financial results for 1H2010 were going to be significantly worse when compared with its 1H2009 results. Shareholders allege that Gunns acted in breach of continuous disclosure obligations under the Corporations Act and the ASX Listing Rules by failing to inform the market once it was aware of the information.

Instead, on 31 August 2009, Gunns said that it was optimistic that the "bottom of cycle" had been reached and stated that, although key export markets had declined in the third quarter of the 2009 financial year, they had stabilised in the final quarter. Gunns also announced a $145 million capital raising that day.

On 11 November 2009, as a part of the Chairman's address, Gunns said that although the strength of the Australian dollar had an effect on operating margins "…it is now evident that markets are accepting this higher Australian dollar and prices are improving for our product".  Gunns made no further announcements about the extent of any decline in likely 1H2010 NPAT result prior to its 22 February 2010 results announcement.

In the lead up to the 1H2010 results announcement, Bloomberg had published a consensus market analyst forecast for Gunns' results, showing an expected NPAT of around $12.3 million. Gunns was also aware of analyst forecasts for even larger forecast NPAT results for 1H2010. However, on 22 February 2010 Gunns surprised the market by reporting only $420,000 in NPAT for the period. The class action also claims that Gunns was aware that its 1H2010 results would be in stark contrast to analyst predictions and that the company failed to correct that impression when it should have in breach of the ASX Listing Rules.

In the week following the 1H2010 results announcement, Gunns' share price dropped by around 35%, from 88 cents at the commencement of trade on Monday, 22 February 2010 to 57 cents by the end of the week.

Gunns share price and ASX: 1 July 2009 to 10 March 2010

The lead applicant in the Gunns class action is Sydney University PhD student, Mr Sean Foley. Mr Foley is making the claim in his personal capacity and on behalf of a range of institutional and retail investors. He purchased 12,001 Gunns shares on 30 December 2009, yet by 31 May 2010 when he sold those shares they had lost almost half of their market value.

The legal action is funded by IMF (Australia) Ltd and is brought on behalf of shareholders who acquired an interest in Gunns shares during the period 31 August 2009 and 19 February 2010 and entered into a litigation funding agreement with IMF (Australia) Ltd before 20 April 2011.