Bank of Queensland facing potential class action by shareholders over capital raising fiasco

Will the Bank of Queensland’s shareholder rip-off lead to a class action?

The effects of Bank of Queensland fleecing of thousands of investors can already be seen in the market. 

What next for aggrieved investor shareholders?

The Bank of Queensland (BoQ) capital raising fiasco for retail investors covered in Crikey last week has already had an impact on the market, with share registry giant Computershare yesterday unveiling an $835 million capital raising - which showed it had learned all of the key lessons.

First up, Computershare didn’t include any form of selective institutional placement in its capital raising, instead launching the 34th so-called PAITREO offer seen on the ASX — a pro-rata structure which treats all shareholders equally and is renounceable, meaning that non-participants are automatically compensated for their rights.

Just like with BoQ it was global investment banking giants Goldman Sachs and UBS teaming up on the Computershare deal, but this time they are giving retail investors 19 days to participate rather than the minimum 10 days.

However, Australia Post has become so unreliable that even 19 days might not be enough.

BoQ has around 110,000 shareholders and more than 30,000 are based in WA, courtesy of the bank’s 2007 takeover of the Perth-based Home Building Society. Crikey has received correspondence from one Perth-based BoQ shareholder who got the 118-page offer document on March 24, 14 days after it closed on March 10.

How 70,000 small Bank of Queensland shareholders were fleeced of $118mRead More

BoQ has privately informed the ASX that it has so far received 450 complaints from shareholders about receiving the offer document after the offer closed. But this only captures the shareholders who have gone to the trouble of complaining. The total number affected will be in the tens of thousands.

Neither ASX, ASIC or BoQ appears to be planning any corrective action to compensate these shareholders for their losses, leaving the only option as a class action.

I wrote to ASX chair Rick Holliday-Smith complaining about the BoQ offer and his compliance boss Kevin Lewis came back saying that ASX “sympathises with those BoQ shareholders in remoter areas who missed out on BoQ’s retail offer due to Australia Post’s less frequent delivery schedules”, but isn’t proposing any changes to the listing rules.

The two obvious changes would be to extend the minimum 10-day offer period and ban non-renounceable offers so that all non-participants are automatically compensated for their surrendered rights.

In the case of BoQ it was an estimated 70,000 retail shareholders who didn’t participate, leaving a $274 million shortfall on the $682 million retail offer, which was picked up by institutional underwriters who are around $50 million in front on their investment.

However, the true retail shortfall was actually slightly more than 40% because BoQ has conceded that $30 million of the $408 million shares accepted in the retail offer were actually from the earlier $323 million accelerated institutional entitlement offer.

As Crikey reported, BoQ told the ASX that 98% of available shares were taken up by eligible institutions, but this wasn’t strictly true.

Yes, around 2% of the institutional offer or $7 million in shares were explicitly rejected but around $30 million worth of institutional entitlements lapsed because the investment bankers weren’t able to make contact with the relevant institutions before the February 22 deadline.

Rather than being shafted without compensation like what happened to the 70,000 retail shareholders, the owners of these institutional entitlements were allowed to double-dip by coming in through the subsequent retail offer which opened on March 1.

Think about that for a moment. When tens of thousands of retail investors were sent an offer document that arrived after the offer had closed, which is surely the equivalent of not being contactable in time, neither the regulators or the company itself is proposing to do anything about it. Yet when UBS and Goldman Sachs can’t track down an institutional investor, they get to masquerade as a retail investor and are given an extra two weeks to participate.

I had a one-hour video call on Tuesday with BoQ chairman Patrick Allaway, where I let him know in very clear terms what a dreadful situation this was. Given the legal constraints preventing BoQ from reopening its now closed retail offer, I pitched him the idea that the bank should launch a compensatory discounted share purchase plan exclusively for retail investors.

Sure, BoQ doesn’t need to raise big licks of additional capital to fund its $1.35 billion purchase of ME Bank, but having diluted its retail shareholders down from owning 63% of the bank to just 57% without paying them any compensation, it is the least they could do.

Meanwhile, discussions continue with class action lawyers. It seems like a pretty open and shut case as this email from a bank shareholder explains:


Hi Stephen,

I am an aggrieved BoQ shareholder with over 14,000 BoQ shares. My losses would be in order of $10-20k as a result of not being able to participate in the entitlement offer (received docs day after close).

I am interested in joining any class action or supporting you in any way I can, as it pertains to seeking investor advocacy through ASIC/ASX.

Regards,

Paul

The issue is running pretty hot in Queensland after The Courier-Mail last week ran a page one pointer to this full length business column spelling out the farcical situation with Australia Post.

The AFR’s Rear Window column also gave it a solid burst, pointing out that even Merrill Lynch investment banker David Goffage, who invented the PAITREO offer, received his BoQ offer documents in Brisbane two days after the offer had closed.

Full story: Crikey

Subscribe to Crikey: Click this link

Class action planned to challenge Australia's new IR laws

The mining union and class action lawyers are considering challenging the Morrison government’s newly passed industrial relations laws in a bid to allow casuals to claim holiday pay on top of their loading as far back as six years.

The government’s stripped-back legislation passed Parliament on Monday, cutting billions of dollars in potential backpay by allowing employers to offset casuals’ 25 per cent loading from any permanent benefits owed due to regular and long-term hours.

Adero Law founder Rory Markham says IR laws have never been retrospective before. 

However, the laws also apply retrospectively, including to eight ongoing court cases against the mining industry that total hundreds of millions of dollars, and could cut workers’ claimed compensation in half.

Employers have hit back at the threats, arguing a challenge would increase uncertainty and threaten thousands of jobs while allowing casuals to “double dip” on their entitlements.

Canberra law firm Adero, which is running most of the class actions, said it is getting advice on whether one of its members can launch a challenge to the laws in the High Court.

“Australia has never had a history of retrospective laws in the IR context,” Adero principal Rory Markham said.

“It would be Adero’s expectation that a High Court challenge to the constitutionality of the recent legislation will be run soon by an interested party, putting in issue whether the Commonwealth has acquired property other than on just terms.”

Under section 51 (xxxvi) of the constitution, the Commonwealth cannot compulsorily acquire property, including entitlements to money, without paying just terms and compensation.

Mr Markham argues the “property” in question is more than 1 million workers’ accrued entitlements over the past six years.

“The Commonwealth’s own estimates consider that more than $14 billion has now been taken from Australian workers who can no longer apply the pre-March 18 laws.

“The very laws that have applied consistently since the introduction of the Fair Work Act on July 1, 2009.”

The CFMEU’s mining division is also getting legal advice over a challenge for its class action against labour hire firm Workpac but declined to comment.

The union has argued that labour hire in the mining sector engages casuals on less than the market wage of their permanent colleagues and then works them like full-time employees on rosters issued 12 months in advance.

The Federal Court held a regular casual miner was a misclassified permanent entitled to paid leave and redundancy, and their 25 per cent loading did not offset this because it failed to specify the benefits it accounted for.

The ruling raised questions about how far such principles would extend to other “regular casuals” employed in sectors such as health, universities or even retail, and the government estimated it could lead to backpay bills for business of up to $39 billion.

Unions argue the ruling is limited to the round-the-clock circumstances of the mining sector.

But new accounting standards last year required 25,000 companies to calculate their liability over entitlements to casuals who may be permanent employees.

Deakin University constitutional law professor Dan Meagher said constitutional challenges over retrospectivity are a “notoriously difficult and complex area” but noted they had worked in relation to workers’ compensation cuts.

‘Completely out of touch with reality’

Australian Industry Group chief executive Innes Willox said talk of a constitutional challenge by overseas-backed class action lawyers was “not in anyone’s interests other than their own”.

“It is very likely that any constitutional challenge will fail but the uncertainty associated with any challenge would only damage employment and the economy,” he said.

Australian Mines and Metals Association chief executive Steve Knott said, without retrospectivity, “the issue would have sent large employers as well as many small and family businesses to the wall”.

Australian Chamber of Commerce and Industry acting chief executive Jenny Lambert said “reopening double-dipping claims is completely out of touch with the reality facing many small businesses who employ casuals as they seek to cope with the end of JobKeeper and recover from the impacts of COVID-19”.

Acting Minister for Industrial Relations Michaelia Cash said the government was “confident in the validity of the measures in the bill”.

“Failure to address the double-dipping issue would be catastrophic for jobs and businesses. Businesses would otherwise face additional costs of up to $39 billion – an impost that would lead to thousands of job losses and business closures.”

Full story: Australian Financial Review

A proposed 30 per cent cap on gross returns to litigation funders would make a large number of class actions financially unviable, new research by PwC chief economist Jeremy Thorpe shows.

When applied to class actions from the past 20 years, the research showed returns in 36 per cent of matters would not have covered the legal costs of running the case, let alone adequate returns to the funder.

Omni Bridgeway CEO Andrew Saker backs a 50 per cent floor on returns to class action members. 

Commissioned by Australia’s largest litigation funder, Omni Bridgeway, Mr Thorpe’s report found even a 50 per cent cap would make some actions unviable and leave Australians without access to justice.

“This demonstrates the trade-off inherent in any cap on litigation funder returns,” the report said.

“It would provide higher returns to some class members, but some members would not receive returns they would have otherwise expected as fewer actions would be undertaken.”

Omni Bridgeway chief executive Andrew Saker said a 70 per cent floor for member returns would not lead to adequate revenue for litigation funders when balanced with the “considerable risks” associated with “long, expensive, complex and bitterly fought actions with uncertain outcomes”.

“In other words, many funder-backed class actions that have led to recoveries for group members arising from negligence, misleading conduct and other illegality, would not have been brought, denying a significant number of Australians any financial recovery,” Mr Saker said.

“To the extent that proceeds from a successful action are eroded by legal fees, this is largely a function of the high costs of pursuing litigation in Australia and not a reflection of litigation funding.”

A parliamentary inquiry looking into litigation funder-backed class actions last year was generally scathing of the sector, which it accused of using the justice system for the primary motive of generating a return on investment.

The final report recommended the government consult on the best way to introduce a statutory minimum return of gross proceeds from class actions (including where the matter is settled out of court) to members.

It also recommended the government explore a minimum gross return of 70 per cent to class members from any damages awarded; and whether a graduated approach could be taken based on risk and complexity.

Full story: Australian Financial Review

COMMENT: Moves to cap gross returns for litigation funders reek of the big end of town - those whose actions have caused the need for class actions - trying to influence their mates in government to minimise pay-outs to those who legally deserve them.

If this happens, justice will be denied to battlers across Australia whose only recourse in recent years has been to avail themselves of various class actions on a "no win, no fee" basis. What could be fairer than that?