Ashley Services could be the next private education provider to feel the anger of jilted investors, with law firm William Roberts and litigation funder IMF Bentham reaching an agreement to pursue a potential class action against the company, which listed on the Australian Securities Exchange last August.
The claim will allege Ashley’s prospectus did not properly disclose the impact of the withdrawal of a federal government subsidy that helped boost enrolments in its Integracom Training Solutions subsidiary.
Ashley, which counts former federal Labor leader Simon Crean as a director, purchased the WA-based Integracom as part of a roll-up of training providers. Ashley only disclosed in February that the subsidiary earned $100,000 in the two months before listing, compared to expectations of $1.8 million. At the time, Ashley said the shortfall would have almost no effect on full-year earnings, lowering forecasts from $31m to $29.2m. The failure of Integracom to hit student enrolment targets was blamed on the removal of a $5500 federal government subsidiary that was intended to help students purchase trade tools.
Ashley was forced to again lower guidance in April, with a “significant shortfall in Integracom earnings” pushing full-year earnings as low as $21m. Shares fell more than 50 per cent in one day, dropping from $1.25 to 56c, with investors who acquired shares under the allegedly defective prospectus — at $1.66 — losing $66m of the total $98.7m raised.
The float was brokered by Canaccord Genuity and Evans and Partners, while several significant funds, including Greencape Capital and Mirrabooka Investments, remain substantial holders of the stock.
Shares fell another 5 per cent yesterday to close at 47.5c.
William Roberts will allege the prospectus should have been updated to reflect the poor trading conditions and significant underperformance in the two months prior to the bookbuild, which began in early August, and the issuance of shares.
“We take the view that Ashley Services has breached the Corporations Act by providing misleading information concerning its expected profitability in its prospectus,” said Bill Petrovski, a lawyer at William Roberts. “Our proposed action will seek to recover losses suffered by shareholders who become group members in the action that purchased their shares pursuant to the prospectus.”
Ashley managing director Ross Shrimpton said no decision had yet been taken to commence proceedings and the company had not yet been served.
“Ashley denies all liability in respect of claims of the nature described in IMF’s announcement and will vigorously defend any such claims should they be commenced,” he said.
IMF is already funding a separate class action against former sector giant Vocation, which had nearly $20m in funding withdrawn after the Victorian government found inappropriate enrolments and 1ow-quality training by two subsidiaries.
Those businesses, BAWM and Aspin, have since been shut, with the company posting a $273m first-half loss in March.
Vocation is now the target of three separate class actions, run by Slater & Gordon, Maurice Blackburn and former Minter Ellison partner Mark Elliott.