ASIC has commenced proceedings in the Federal Court against health, beauty and wellness company McPherson’s Limited (ASX:MCP) for allegedly breaching its continuous disclosure obligations and engaging in misleading or deceptive conduct during capital raising in late 2020.
On 20 October 2020, McPherson’s provided earnings guidance to the ASX forecasting growth in profit before tax of between $10.2m to $11.1m for the first half of the 2021 financial year and $24.1m to $25.3m for the full year.
McPherson’s guidance was based on forecast sales of its high-margin Dr LeWinn product line to its key China joint venture partner, Access Brand Management (ABM). However, by 30 October 2020, McPherson’s had received information indicating the risk that sales to ABM would be significantly lower than McPherson’s had forecast.
Despite this, on 2 November 2020, McPherson’s issued a cleansing notice to the ASX that represented that it had no information that needed to be disclosed and that it had complied with all its disclosure obligations.
When McPherson’s announced, on 1 December 2020, reduced Dr LeWinn sales forecasts, a revised first half 2021 earnings guidance and a withdrawal of its earnings guidance for the full financial year, its share price fell 34.5%.
ASIC alleges that between 30 October and 1 December, McPherson’s breached its continuous disclosure obligations and misled investors by:
- failing to remove or update its original earnings guidance,
- issuing a cleansing notice to the ASX on 2 November 2020 relating to a capital raising that represented that McPherson’s had no information that needed to be disclosed and that it had complied with all its disclosure obligations, and
- reaffirming the October growth forecasts and the Dr LeWinn sales forecasts at its annual general meeting on 4 November 2020.
ASIC also claims that McPherson’s former CEO Laurence McAllister breached his duties by failing to prevent McPherson’s breaches.
Further, ASIC alleges that McPherson’s announcement on 1 December was misleading when it stated it had only become aware of information on 27 November regarding the need to downgrade its earnings guidance. ASIC alleges McPherson’s had been aware of the information for weeks. ASIC also alleges that by authorising this 1 December announcement, Mr McAllister contravened section 1309(2) of the Corporations Act.
ASIC Deputy Chair Sarah Court said, ‘Cleansing notices are a critical feature of Australia’s low doc capital raising regime. At the time of capital raising, these notices give investors comfort that the company has met its disclosure obligations and that it has no further information that investors would need to make an informed assessment of a company’s prospects. ASIC’s case against McPherson’s is that its cleansing notice was misleading, as material information had not been disclosed to the market.’
‘Company directors and CEOs must ensure their companies comply with their continuous disclosure obligations and ensure that they provide accurate information to the market. If they don’t, ASIC can take action and companies and individuals can face penalties imposed by the Court,’ concluded Ms Court.
ASIC is seeking pecuniary penalties and declarations.
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Background
McPherson’s is an Australian company listed on the ASX which provides health, wellness and beauty products in Australia and overseas. McPherson’s business includes six core brands: Manicare, Lady Jayne, A’kin, Swisspers, Multix and Dr LeWinn.
On 27 October 2020, McPherson’s announced the acquisition of the Global Therapeutics business from Global Therapeutics Pty Ltd and an associated equity raising of $36.5 million by way of an institutional placement to fund the acquisition. McPherson’s also announced its intention to conduct a share purchase plan to raise up to $10 million from existing shareholders.
On 28 October 2020, McPherson’s announced the completion of the placement, which raised $36.5 million.
Between 2 November 2020 and 20 November 2020, McPherson’s undertook a share purchase plan that was open to existing shareholders to subscribe for up to $30,000. On 25 November 2020 McPherson’s announced that all valid share purchase plan applications were accepted, and the company was to issue 4.37 million shares at an issue price $2.15 per share on 27 November 2020, having raised $9.4 million.
Editor's note 1:
A first case management hearing occurred on 13 February 2023 before Justice Lee. A further case management hearing is listed on 30 March 2023 at which time the proceedings will be set down for hearing.
Editor's note 2:
The matter has been listed for a further case management hearing on 31 August 2023.
Editor's note 3:
A case management hearing was conducted on 13 November 2023 before Justice Lee. The matter has been adjourned for further a case management hearing on 7 December 2023, or alternatively on a date to be agreed in February or March 2024.
Editor's note 4:
The matter has been listed for a further case management hearing before Justice Lee on 12 April 2024. The case management hearing scheduled for 7 December 2023 has been vacated.
Editor's note 5:
There was a case management hearing on 12 April 2024, and a direction made by His Honour for the parties to provide a joint communication with their mutually available trial dates. We are waiting confirmation of a trial date.
Editor's note 6:
A case management hearing was held on 21 August 2024 before Justice Markovic. The matter has been listed for hearing on 2 June 2025 for 15 days.
A pre-trial case management hearing before Justice Markovic is set down for 30 April 2025.