Published 14 April 2010
The Securities Commission said yesterday it would file civil proceedings today against Nuplex Industries Ltd, 5 current directors & one former director for breach of the company’s continuous-disclosure obligations for 2 months just over a year ago.
It’s the first continuous-disclosure case the commission has brought.
The directors involved are managing director John Hirst (Sydney), non-executive directors Robert Aitken (chairman, Sydney), Barbara Gibson (Melbourne), David Jackson (Glendowie) & Michael Wynter (Sydney), and former non-executive director Bryan Kensington (St Heliers).
Commission chairman Jane Diplock said the commission was seeking declarations of contravention, pecuniary penalties (maximum penalty of up to $1 million/defendant) & compensatory orders: "The commission alleges that from 22 December 2008 until 19 February 2009 Nuplex breached its continuous-disclosure obligations under the NZX listing rules & the Securities Markets Act 1988 by failing to disclose to the market a breach of a banking covenant, and that both Nuplex & the directors are responsible for this failure.
“This matter came to the commission’s attention through its own market surveillance. The commission acknowledges NZX provided information regarding an initial price inquiry.”
Ms Diplock said the commission would lodge a statement of claim at the Wellington High Court this morning.
Nuplex, which specialises in chemicals manufacture, is listed on both the NZX & the ASX. The company reported record half-year profit in January, only a year after being forced to renegotiate its bank debt and at the time raise equity, while it was trying to make an acquisition in Europe.
Mr Hirst is due to retire as chief executive at the end of June after 9 years in that job and a total 43 years with the company. In February, Nuplex appointed Boral Ltd executive Emery Severin to replace him.
One current director, Peter Springford (St Heliers), was appointed on 1 September 2009 – after the alleged offence – and doesn’t face the proceedings.
Mr Kensington, a former chairman of Ernst & Young, was on the board for 16 years and chaired the audit committee. He retired at the 2009 annual meeting, last November, and was replaced as audit committee chairman by Mr Jackson, also a former chairman & audit partner of Ernst & Young.
Fred Holland retired at the 2008 annual meeting after 43 years with the company & its predecessor, Revertex Industries (NZ) Ltd. He immigrated from England after first coming to New Zealand in 1962 to resolve technical issues with the company’s first resin plant, and finished with nearly 20 years as managing director and 12 years as chairman.
The way the new chairman told it:
After being a sound but unexciting company for years, Nuplex began an aggressive expansion programme during the past decade, which went close to its undoing in the global recession. This is how the new chairman, Mr Aitken, explained events to the 2009 annual meeting:
“The year started very strongly for the company despite growing fears that the turmoil in the financial markets would flow through to the general economy. At that time the board was aware that the company’s gearing was towards the upper end of its target range. A capital-raising was discussed on several occasions, but was delayed for 2 reasons. Firstly, professional advice that the market had little appetite at that time for capital-raisings to repay debt – how matters have changed! Secondly, we were close to making a significant acquisition in Europe and, as our earnings remained strong and there was significant headroom in our covenants, it was decided to try to combine a general capital-raising to reduce gearing with a raising to fund the proposed acquisition. “At the annual meeting in late October 2008, we signalled a softening in demand across most segments of our business but, with cost reductions already in place, earnings remained pretty much on track. The expectation was that market conditions would remain challenging, but that Nuplex was well placed to weather these conditions. We recognised that strengthening our balance sheet by reducing our overall gearing levels and extending the terms of our debt facilities, as well as driving operational improvement across our businesses, would be critical achievements. We advised in November 2008 that we had secured credit approval to extend $$300 million of the $A350m million in credit facilities due to mature in late 2009 – $A200 million to mature in November 2011 (3 years out) and $A100 million in November 2010 (2 years out). Shortly afterwards we pulled out of acquisition discussions with our target as market uncertainty increased. “The speed with which the credit markets froze and the way in which the economic slowdown occurred from late 2008 was unexpected by most. For Nuplex, matters were compounded because of a rapid deterioration in the value of the $NZ against our major trading currencies. Nuplex’s treasury policy sought to put in place a natural hedge by matching foreign currency debts with foreign currency assets & earnings. But the depreciation of the $NZ against the $US, Euro & $A in late 2008 resulted in a significant increase in bank debt levels when translated into $NZ. Combined with a softening in earnings in the later stages of the first half, there was increasing pressure on the company in relation to its senior debt cover ratio covenant. “Under normal market conditions, a request for a company of Nuplex’s standing to secure a waiver or softening in the covenant threshold would have been readily agreed to. However, these were not normal conditions. As the full effect of the US sub-prime crisis rolled out, there was a virtual collapse of the world financial system, with credit markets freezing almost overnight and many lenders facing their own extraordinary challenges. Negotiations with our bankers were, at times, difficult & drawn out over a considerable period. “Whilst discussions with our bankers continued, the general decline in equity prices, in combination with concern over our funding, resulted in a significant decline in Nuplex’s share price to around $1. In late February, Nuplex secured a waiver from compliance with its senior debt cover ratio covenant until April 2009 and an increase in covenant threshold through to September. This gave the company time to reduce its debt facilities in order to be able to operate within the amended terms of its bank facilities. “The directors initially sought to raise approximately $60-80 million through a placement to institutional & habitual investors and a renounceable rights issue to existing shareholders. As a consequence of the fear & uncertainty in the financial markets at the time, there was pushback from institutional investors that