The Federal Court has ordered Austal Limited (ASX:ASB) (Austal) to pay a penalty of $650,000 after finding the ship building company contravened continuous disclosure laws.
The Court also found Austal’s former CEO, David Singleton, was knowingly involved in the disclosure failures. Mr Singleton has been ordered to pay a penalty of $50,000.
Austal and Mr Singleton admitted, and the Court found, that between 16 June 2016 to 4 July 2016, Austal failed to disclose a likely profit writeback of at least US$90 million for its FY2016. The writeback would generate a loss of at least US$40 million for the company. The writeback also meant previous profit guidance from Austal (EBIT margin) was no longer reliable and should have been withdrawn.
ASIC Deputy Chair Sarah Court said ‘Investors who bought shares in the period of misconduct did not know the unfavourable information about Austal’s FY2016 earnings. This information was likely to have informed their decision to buy or sell Austal shares during the relevant period.
‘Investors need to have timely access to accurate, relevant information to form their own judgement of risk and reward, and that is why the continuous disclosure regime is so important,’ concluded Ms Court.
The Court found that both Austal and Mr Singleton were aware of the information about Austal’s FY2016 earnings from 16 June 2016 and that the information was material to investors. The Court also found that Austal’s and Mr Singleton’s continuous disclosure contraventions were serious and not the result of mere carelessness, inadvertence or inattention.
Austal shares totalling $23 million were traded between 16 June and 30 June 2016.
When handing down his decision, Justice O’Bryan remarked ‘compliance with the continuous disclosure provisions is central to the promotion of fair and efficient markets, as the integrity and efficiency of financial markets depends on investors having access to market-sensitive information about listed entities at the same time.’
Austal and Mr Singleton have been ordered to jointly contribute to ASIC’s legal and investigation costs in the amount of $500,000.
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Background
Austal is a listed Australian shipbuilding company that operates globally, including in the USA and Australia with its head office in Henderson, Western Australia.
In FY2016, when the relevant contraventions occurred, Austal derived 80–85 per cent of its total annual revenue from its wholly-owned US subsidiary Austal USA, LLC (Austal USA). At that time, Austal USA had two major shipbuilding contracts with the US Navy, including the construction of eleven fully aluminium warships known as the Littoral Combat Ship (LCS) program. The LCS program was in the early stages of construction with the first of the LCS vessels delivered in August 2015 and a second vessel delivered in late FY2016. The other LCS vessels were at various stages of construction with some being constructed concurrently.
On 4 July 2016, Austal announced to the market that it was required to make a one-off A$156 million writeback of work in progress due to a significant increase in construction costs for its LCS shipbuilding program and downgraded its FY2016 EBIT guidance. Following the announcement, Austal shares closed over eight per cent lower than its previous closing price on increased trading volumes.
ASIC’s civil penalty proceeding against Austal and Singleton was filed in June 2021 (21-128MR).