Jilted investors going for broke

Tania Bawden

The Advertiser

28 February 2003

A class action against directors of the former Harris Scarfe could pave the way for more court challenges by shareholders, writes TANIA BAWDEN

RETIREE Eleanor Guglielmin faces a long wait in her quest to recover more than $225,000 she spent on Harris Scarfe shares.

Mrs Guglielmin, 58, from the Upper South-East, was still in the market buying Harris Scarfe shares on the day leading up to a sudden trading halt on March 30, 2001.

Her shares were rendered worthless when the company was later declared insolvent with debts of about $150 million. About half was owed to the ANZ bank. The stock was later delisted, leaving shareholders last on the list for any compensation.

While Harris Scarfe has since been bought by new owners, Mrs Guglielmin became the lead applicant in a class action involving 3500 shareholders. Almost three years later, the wait goes on.

The gang of small shareholders are seeking between $15 million and $20 million in damages from six former directors who allegedly misled shareholders about the true value of the company.

Former executive chairman Adam Trescowthick, John Patten, Ross Oakley, Robert Mattingly, Roger Curtis and Mark Trescowthick are named in the action.

The defunct Harris Scarfe Holdings went into voluntary administration in April, 2001, after allegations of serious, internal, financial irregularities over a six-year period. Former finance director Alan Hodgson was sentenced to five years' jail for falsely inflating the accounts. The Harris Scarfe chain of department stores was bought out of receivership in late 2001 by a management team supported by private investors.
It now trades under the Harris Scarfe Australia company name and has no connection to the old management and owners.

The shareholders in the class action - who exclude more than 10,000 larger shareholders, including the Trescowthick family - claim they were given misleading information on the true value of the company through news releases, disclosures to the stock exchange, financial statements and directors' reports.

“It is alleged that, as a result, they either bought their shares at a price greater than their true market value or lost the opportunity to dispose of them before they became valueless,'' Duncan Basheer Hannon partner Peter Humphries said.

Duncan Basheer Hannon, the law firm leading the civil claim, believes the Harris Scarfe action could be prolonged because Australia's class action laws are still in their infancy. ``You couldn't bring representative proceedings in SA until the early 1990s,'' Mr Humphries said.

Mr Humphries said the Harris Scarfe case was running ``pretty much on new ground''. The case was last before the Federal Court 13 months ago when the defendants sought to have the application struck out.
“It was a complex preliminary hearing which went for three days - there is a lot of law involved in this,'' Mr Humphries said.

Secured creditors were still waiting for money while shareholders were ``last on the list for any payout after the wind-up of the company, even if there was any money left''. Mr Humphries said his firm had adjusted its statement of claim recently to more accurately relate to the company's records.
Class actions pending from the collapse in 2001 of One.Tel and HIH Insurance would help build legal precedents in this area.

With a $112 million settlement in a class action against GIO directors having taken three years, deListed.com.au website operator Tony McLean said he would not be surprised if the Harris Scarfe class action ran much longer.

“Since 1990, there have been 500 companies on my site which have been deregistered,'' Mr McLean said. “In the past two years, some 200,000 shareholders have been affected by the failure of companies and tens of thousands more by as-yet-unfinished company insolvencies stretching back to the late 1980s.
“At least Harris Scarfe shareholders have had no problem crystallising their capital losses because the liquidator's declaration came through early.''

Shareholder Mrs Guglielmin started buying Harris Scarfe shares when they were trading around $1.75 in early 2000. In the 15 months leading up to the collapse, she bought 208,800 shares in the historic Adelaide company.
“I had been told several times by someone inside the company net asset backing was $1.60 and I thought they were good value and still going very well,'' she said.
“It's not as though we went in blind. We kept researching it.''