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Nuplex disappointed at landmark prosecution

Wednesday 14th April 2010

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A landmark case over continuous disclosure obligations is shaping up as the board of Nuplex Industries prepares to defend "very vigorously" its conduct during the renegotiation of banking arrangements which the Securities Commission says the market should have known about sooner.

The commission announced last night it was suing Nuplex for failing to disclose a breach of banking covenants early last year - actions which Nuplex says reflected fruitful negotiations with its bankers in the "uncharted waters" created in late 2008 by the global financial crisis.   

"The Commission alleges that from 22 December 2008 until 19 February 2009 Nuplex breached its continuous disclosure obligations under the NZX Listing Rules and the Securities Markets Act 1988 by failing to disclose to the market a breach of a banking covenant, and that both Nuplex and the directors are responsible for this failure," commission chair Jane Diplock said.

Nuplex responded this morning before trading opened on the NZX and ASX, where the company is listed, saying it was "very disappointed" by the action, the first ever taken by the commission over alleged continuous disclosure breaches.

Nuplex shares fell 2.2% to $3.40 in early morning trading on the NZX, but are still twice as high as they were a year ago.

The commission is asserting that Nuplex should have disclosed the negotiations, while Nuplex believes the successful outcome of the negotiations required no disclosure.

"Given the banks’ positive attitude, and after consideration by all board members, the board made the judgement in January 2009 that there was nothing material to disclose beyond the disappointing half-year financial information," Nuplex said.

"Furthermore, the board believes that disclosure while the negotiations were confidential and incomplete could have prejudiced the company, its shareholders and the banks."

The Commission is seeking declarations of contravention, pecuniary penalties up to maximum of $1 million per defendant, and compensatory orders. A statement of claim will be filed in the Wellington High Court this morning.

"This matter relates to disclosure in connection with discussions between the company and its banks to review one of its debt covenants," Nuplex said."The company’s negotiations with its banks were successful and led to them loosening the senior debt cover ratio (SDCR) following the company’s results announcement for the half year to 31 December 2008."

These discussions had occurred "as soon as the company had a clear understanding of the impact of the global financial crisis on demand and of the rapid devaluation of the New Zealand dollar,” the company said.

“The banks indicated they would consider loosening the covenant and, following completion of their internal processes, that is what they did.”

"Business conditions during the 2009 financial year were unprecedented across the world, and in January 2009 the company was in uncharted waters,” Nuplex said.

“The board exercised reasonable, commercial judgement on disclosing the successful SDCR negotiations with the banks in the interests of the company and its shareholders."

The commission said its own market surveillance had triggered the action on Nuplex. NZX had provided information regarding an initial price inquiry, it said.

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