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Corporate watchdog targets Centro -

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Corporate watchdog targets Centro

Peter Ryan reported this story on Wednesday, October 21, 2009 12:29:00

ELEANOR HALL: To a corporate crackdown back home. Australia's corporate regulator today launched a
civil court action against the directors of the Centro Properties Group, which was pushed to the
verge of collapse by the credit crisis.

The Australian Securities and Investments Commission alleges that eight directors, including the
former chairman and the chief executive, failed to discharge their duties with care and diligence
in approving a range of financial reports.

Business editor Peter Ryan has more.

PETER RYAN: Centro Properties was one of the first high profile victims of the credit crisis and an
early case study about the dangers of bad timing and excessive debt. The company's spectacular
collapse in market value, from a high of $10 a share in May 2007 to a low of 4 cents late last
year, demolished investor fortunes along with Centro's reputation as a global property goliath.

Today the corporate regulator ASIC pounced on eight of Centro's current and former directors along
with a former chief financial officer. In a statement, ASIC said the defendants failed to discharge
their duties with care and due diligence in relation to the classification of interest bearing
liabilities amounting to $1.5 billion.

EXCERPT FROM STATEMENT: Central to ASIC's action is the responsibility of company directors and
chief financial officers to take reasonable steps to ensure that information contained in financial
reports and disclosed to the market is accurate, complies with relevant accounting standards and is
not misleading.

PETER RYAN: ASIC alleges financial reports for the year ending June 2007 contained material
mis-statements and that the liabilities were wrongly classified as non-current when the opposite
was the case.

In the statement, ASIC claims the financial reports in question:

EXCERPT FROM STATEMENT: Did not comply with the relevant accounting standards and regulations, nor
did they give a true and fair view of the financial position and performance of the entities.

PETER RYAN: The targets of ASIC's action include Centro's former chairman Brian Healey and the
former chief executive Andrew Scott, who resigned in January last year with a potential payout of
$3 million.

Two current board members, James William Hall and Paul Ashley Cooper, have also been named, along
with the former CFO Romano George Nenna. ASIC is seeking to disqualify the defendants from managing
corporations and wants the Federal Court to impose financial penalties.

So how did a once bullish and fast expanding company get to this point?

PETER CASHMORE: Essentially two things, the velocity in terms of the subprime credit crunch in the
US and various bankers basically pulled back from lending into property assets. But clearly the
margin costs, expansion in funding costs in the US obviously caused Centro some issues.

PETER RYAN: Reaction to ASICs civil action has been difficult to source today, but for some
context, here's a flashback. Property analyst Peter Cashmore told The World Today back in 2007 that
Centro was an early casualty of the credit crisis, caught up in a dramatic repricing of debt.

PETER CASHMORE: Centro is the most sophisticated and leveraged funds management vehicle, and also
too, it was the fund management vehicle that had the most exposure to the US market of all the
other fund managers operating within the REITs (Real Estate Investment Trust) space.

So it particularly was, both in terms of leverage and its operating platform in the US and in
retail, was I guess, you know, in a pull back, in a credit crisis particularly at this stage, was
always going to be the vehicle that would most suffer from any weakness in that market in terms of
debt funding costs increasing and asset valuations decreasing.

PETER RYAN: ASIC's case against Centro is expected to run for months and will have its first
hearing in the Federal Court on November the 20th.

ELEANOR HALL: That's business editor Peter Ryan.