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Estia Health share price on watch after company hit by class action

Aussie healthcare company Estia Health Ltd (ASX: EHE) could see its share price fall in early trade as the company announced to the ASX that it has been served with a Federal Court class action.

What did Estia Health announce this morning?

In a pre-market announcement, management advised that it has been served with a class action proceeding filed by the law firm Phi Finney McDonald in the Federal Court of Australia.

According to Estia, the proceeding alleges breaches of market disclosure obligations in 2015 and 2016 and has been filed on behalf of shareholders, who, between 12 August 2015 and 6 October 2016:

  1. Acquired an interest in Estia shares, or
  2. Acquired long exposure to Estia shares by entering into equity swap confirmations in respect of Estia shares.

The company has said it will vigorously defend the proceeding, but is not in a position to state whether the proceeding is likely to have a material impact on its financial position or performance.

What’s behind the class action?

An Australian Financial Review (AFR) article in February 2018 reported that Estia was facing the threat of class action over its 2016 financial year results and 2017 financial year guidance.

According to the article, Phi Finney McDonald was gathering shareholder support for a proposed class action to be funded by Investor Claim Partner.

While little has been said by Estia this morning other than the above, the AFR article reported that the class action would allege that Estia failed to disclose to the market serious difficulties that the business was experiencing in the lead-up to its 2016 results and 2017 guidance announcement.

The Aussie aged care company’s share price plummeted from $4.89 to $2.98 in the space of two weeks in August and September 2018, just prior to slashing its earnings guidance on 6 October 2019.

Ahead of today’s market open, the Estia share price is trading 23.7% higher so far in 2019 on the back of stable half-year results and a general rebound in domestic equities in the first half of the year.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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