Aged care provider Estia Health taken to Federal Court in class action
Written on the 17 July 2019 by Paris Faint and Matt Ogg
Aged care community operator Estia Health (ASX: EHE) has been served with a class action in the Federal Court of Australia.
Law firm Phi Finney McDonald is acting on behalf of aggrieved shareholders, arguing Estia breached its continuous market disclosure obligations regarding the financial impact of its Kennedy Health Care (KHC) buyout.
In December 2015, Estia announced the acquisition of KHC which owned and operated a large group of residential care facilities.
Estia then upgraded its profit guidance, forecasting a 25 per cent growth in NPAT with claims the acquired sites would be "immediately EPS accretive".
Estia then reaffirmed its guidance twice, once in February 2016 and again in April 2016, declaring to the market its integration of KHC was "on track".
It didn't take long before the rosy outlook started to darken.
In its 2016 full year results released to the market on 28 August, Estia disclosed its FY16 earnings were materially lower than the guidance it had confirmed only four months prior.
NPAT missed the mark by 7.5 per cent, while on the same day Estia made an underlying FY17 EBITDA forecast that was 15 per cent shy of market consensus forecasts.
Just two days later founder Peter Arvanitis announced his resignation as a director at Estia and the sale of 17.75 million shares, representing 9.43 per cent of the company's issued share capital.
From 26 August to 2 September, shares plummeted from $4.65 each to $2.98.
In mid-September, Paul Gregerson immediately stepped down from his role as CEO, following suit from both Arvanitis and former CFO Joe Genova who departed after the disappointing results.
Norah Barlow rose to the interim CEO position but that move became permanent in November. Her leadership would later be described by chairman Gary Weiss as "transformative", before she departed the company in late 2018.
In December 2016 Estia bit the bullet and admitted it had poorly handled the integration of KHC, stunting its financial performance.
Phi Finney McDonald will allege on behalf of shareholders that, between April 2016 and October 2016, Estia breached its disclosure obligations when it didn't inform the ASX that it was struggling to integrate KHC.
The firm will also argue that Estia engaged in misleading and deceptive conduct by maintaining its optimistic guidance without any qualification or reasonable grounds.
Allegedly, Estia's conduct caused its share price to trade at a price substantially higher price than what would have prevailed in a properly informed market.
The company has 72 aged care communities across Victoria, South Australia, New South Wales and Queensland
The class action comes as the Royal Commission into Aged Care continues.
In three weeks, the final Brisbane-based hearing will inquire into the regulation of aged care, focusing on oversights of quality and safety within the current system.
Hearings have already been completed in Adelaide, Sydney, Perth and Darwin.
Phi Finney McDonald tackling several listed giants
Phi Finney McDonald is currently fighting a series of high-profile class actions against prominent listed companies including Domino's Pizza (ASX: DMP), BHP (ASX: BHP), Retail Food Group (ASX: RFG), AMP (ASX: AMP), Commonwealth Bank (ASX: CBA) and Getswift (ASX: GSW).
The class action against Domino's alleges the pizza giant short-changed its delivery drivers and in-store workers when it failed to add 25 per cent loading for casual workers who worked after hours, weekend and public holidays.
In its second battle against a franchisee, the firm is arguing that Retail Food Group engaged in misleading and deceptive conduct as well as breached its continuous disclosure obligations to the ASX.
When Phi Finney McDonald launched its action against RFG, following a string of damning revelations which wiped more than $550 million from the franchisor's market capitalisation, it became the third firm to do so.
In the banking sphere, AMP and CommBank are under fire regarding major issues that surfaced during the Financial Services Royal Commission.
Phi Finney McDonald is arguing in the Federal court that AMP deliberately and systematically charged its consumers fees for services that were not provided.
Against Australia's biggest bank, the firm refers to AUSTRAC's case which alleged CommBank engaged in widespread breaches of anti-money laundering legislation.
The class action against BHP was launched in the aftermath of what has been called Brazil's worst ever environmental disaster; the collapse of a BHP joint-owned dam which all but destroyed a nearby municipality and killed 19 people.
Brazilian federal prosecutors claimed that BHP and its JV partner Vale SA failed to take actions which could have prevented the disaster, while Phi Finney McDonald adds the resources giant failed to meet its disclosure obligations to the market and engaged in misleading and deceptive conduct.
Out of three separate class actions brought against software-as-a-service company GetSwift, Phi Finney McDonald's was the only one given the green light to go ahead.
The firm argues that a series of ASX announcements made by Getswift between February and December 2017 were misleading and breached continuous disclosure obligations.
By comparison to notable class action firms including Slater and Gordon (ASX: SGH) and Maurice Blackburn, Phi Finney McDonald is the new kid on the block.
The firm was only established in 2017, yet it is proving a tenacious competitor in the class action space.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
Business News Australia
Author: Paris Faint and Matt Ogg