The embattled Freedom Foods Group Ltd (ASX: FNP) now has yet another thing to worry about.
Freedom Foods has announced to the market this morning that it is now facing a class action lawsuit from law firm Slater & Gordon Limited (ASX: SGH).
The announcement this morning was a short one:
Freedom Foods Group Limited advises that a Victorian Supreme Court class action proceeding was commenced against the Company and its auditors, Deloitte Touche Tohmatsu, and served on the Company on 9 December 2020. The proceeding alleges breaches of the Corporations Act 2001 (Cth), Australian Securities and Investments Commission Act and Australian Consumer Law.
The Company has appointed Arnold Bloch Leibler (ABL) to defend the proceeding.
According to reporting in the Australian Financial Review (AFR) today, the class action is on behalf of shareholders who bought or acquired Freedom shares between the dates of 7 December 2014 and 24 June 2020 (when the company was placed in a trading halt, which remains in place to this day).
The AFR reports that the class action’s “key allegation” is that Freedom “withheld material information relating to its true asset position since 2014”. It alleges that Freedom Foods “engaged in significant breaches of its continuous disclosure obligations and misleading and deceptive conduct”. It also alleges Freedom’s auditor Deloitte “failed in its duties in signing off on Freedom Foods’ accounts each financial year between 2014 and the first half of 2020”.
How did Freedom Foods get here?
Freedom Foods has had a year I’m sure it (and its shareholders) would rather forget. It all started back in June, when it was announced the company’s former chief executive officer, Rory McLeod, advised he would be going “on leave”. A few days later, it was announced that McLeod, as well as Freedom’s chief financial officer, would be leaving the company.
This came after revelations there had been some serious irregularities in Freedom’s accounting books, which failed to note that large volumes of food stocks had perished in storage. This lead to multiple writedowns amounting to around $60 million in inventories and a further ~$10 million in ‘bad debts’.
Following these embarrassing revelations, it was announced the company would go into an ASX trading halt until 30 October. Well, 30 October came and went and Freedom shares still remain in purgatory.
The company finally released its full-year results for the 2020 financial year last Monday (30 November) and told investors it had sustained a loss after tax of $174.5 million in FY2020.
Freedom Foods’ Interim Chief Executive Officer, Michael Perich, called these number a “deeply disappointing set of results for Freedom Food Group, its people and its shareholders”.