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Melbourne-headquartered vehicle leasing, fleet management and employee benefits company FleetPartners (ASX: FPR) is staring down a shareholder class action over the handling of its reporting of financial performance to the market more than four years ago in an incident that led shares to plummet by 47 per cent.
Phi Finney McDonald has today commenced a shareholder class action in the Federal Court of Australia against the company, formerly known as Eclipx Group (ECX) until March this year, for allegedly misleading and deceptive conduct.
After providing an update in January 2019 that its FY net profit after tax and amortisation (NPATA) would be in line with the FY18 performance of $78.1 million, on 18 March that year Eclipx entered a trading halt before making a consequential announcement two days later.
In a trading update on 20 March 2019, Eclipx reported its NPATA was down 42.4 per cent year-on-year in the first five months of FY19, due to numerous factors such as softer trading conditions, a reassessment of recovery rates on some debtor groups, the impact of process errors identified in due diligence, a reduction in end-of-lease earnings and lower new business writings, and lower than expected new car sales.
The due diligence came about as Eclipx had been the target of a $911 million takeover offer from salary packaging, novated leasing and fleet management group McMillan Shakespeare (ASX: MMS), but the 20 March announcement came with another shock for the market - the deal was off.
When the trading halt was then lifted, ECX shares fell substantially, although in the four years since they have more than recovered.
In November 2019, ECX also restated its FY17 and FY18 financial results, which included a $9.5 million reduction in trade receivables in its Right2Drive business resulting from revenue recognition issues arising from 'judgments made in respect to the amount of revenue to recognise and processing errors' in that business.
Phi Finney McDonald’s class action alleges ECX breached its continuous disclosure obligations by making representations and failing to disclose certain information relating to the company’s FY18 and FY19 earnings guidance and FY17 and FY18 financial results.
The law firm also alleges ECX’s share price was inflated by its disclosure failures during the claim period and that as result group members suffered loss and damage.
The class action seeks compensation for shareholders that acquired shares, or an interest in shares, during the period 8 November 2017 to 10.35am on 20 March 2019.
"We allege that the company’s financial results and earnings guidance during the claim period were based upon excessive revenue recognition in the company’s Right2Drive business and unreasonable expectations as to the integration and future performance of both the Right2Drive and Grays businesses within the group," says Phi Finney McDonald principal lawyer Denée Muller.
In a statement to the ASX, FleetPartners reported its intention to defend the claim.
At the time of writing today, FPR shares are unchanged at $2.62.
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