Professional education provider Vocation Ltd (ASX: VET) today announced the completion of a restructure of its Victorian business to reduce costs and help ensure past problems are not repeated.
The vocational training provider recently had nearly $20 million worth of funding pulled by the Victorian government after it found problems with the quality of courses provided. The bureaucrats also concluded that students were being encouraged to enroll in courses inappropriate to their needs, which the taxpayer was often footing the bill for.
The stock has slumped more than 70% since the announcement of the lost funding leaving several prominent institutional investors with bruised egos and big losses to be posted to their funds' accounting books.
Upset at their losses the fund managers are alleging that Vocation engaged in misleading and deceptive conduct prior to the funding loss announcement, while also allegedly breaching its continuous disclosure obligations in connection with compliance issues at its failing Victorian-based, Registered Training Organisations.
All this is music to the ears of the fee-hungry litigation lawyers at Bentham IMF Ltd (ASX: IMF) and Slater and Gordon Limited (ASX: SGH) who will be eager to teach the education provider a lesson on disclosure obligations it won't forget in a hurry.
Mark Hutchinson, Vocation's 35-year-old chief executive officer is not so long out of school himself, but will vigorously defend any legal claims commenced against his business. The judgments would have a big impact on the business, with the result impossible to predict given Vocation is likely to have a reasonable defence as to its compliance with disclosure obligations.
Prior to the announcement of the pulled funding many professional fund managers waded into the stock despite the major red flag of the staff, founders and chief executive dumping much of their own holdings during the float.
After consistently trading over $3 a share throughout the winter of 2014, the stock now swaps hands for 71 cents. The short-term outlook faces the impending legal actions, while the long-term outlook faces questions over the sustainability of a business model reliant on government funding for vocational training. Investors would be advised to watch this one from the sidelines for now.
