Beauty products maker McPherson’s has lost a civil action in the Federal Court brought by the Australian Securities and Investments Commission (Asic).
Asic commenced its investigation into McPherson’s after it posted earnings guidance to the ASX that included a forecast growth in profit before tax, underpinned by the purchasing forecasts of its Dr LeWinn skincare product line, in October 2020.
McPherson’s, however, soon became aware that the forecasts of Dr LeWinn products were below expectations, removing the reasonable basis for its profit forecast. This required a corrective disclosure to the market.
But McPherson’s failed to issue a correction for nearly three weeks. When it did, its share price fell by 34.5 per cent.
“Today’s decision reinforces that listed entities must act promptly when information emerges that materially alters previously disclosed earnings guidance,” said Asic chair, Sarah Court.
“Delays in disclosing material information or correcting market expectations can undermine market integrity and investor confidence.”
The court found McPherson’s to be in breach of its continuous disclosure obligations and misled investors. Its former CEO and MD, Laurence McAllister, was also found to be in breach of his duty of care and diligence as a director.
“Mr McAllister put [McPherson’s] in a position where it was at risk of contravening the Corporations Act and the Asic Act and exposed it to the risk of civil penalties,” said presiding judge, Justice Markovic.
“It was in my view, reasonably foreseeable that this would be a consequence of his action, or more relevantly, inaction. Mr McAllister failed to exercise the degree of care and diligence that a reasonable person acting in the role of CEO and MD would have exercised given the matters of which he was aware at the time.”
A hearing on penalties is due to take place in court in the near future.
