Forge faces potential class action

Litigation funder Bentham IMF and law firm Slater & Gordon will pursue a potential class action against failed engineering contractor Forge Group amid allegations of misleading and deceptive conduct by the company.

Forge fell into receivership last week after financier ANZ Banking Group withdrew its support.

The contractor emerged from a trading halt in November last year to announce a $127 million profit write-down related to cost blow-outs on its Diamantina and West Angelas power station projects.

It went on to disclose further losses on the projects in the months that followed, bringing the total losses on the projects to at least $155 million.

Forge's collapse has led to about 1,500 workers losing their jobs, with the company losing all but one of its contracts.

IMF says the shareholder claim will allege Forge knew or should have known about and disclosed problems with the power station contracts from early 2013.

It will also allege that Forge misled the market in its three downgrade announcements by stating that ANZ had waived covenants and confirmed ongoing support, without disclosing that this was conditional on Forge securing an injection of fresh equity.

The claim will be funded by IMF and run by Slater & Gordon.

IMF investment manager Tania Sulan said the Forge collapse was "a classic case of a company and its directors breaching fundamental obligations to shareholders and the market".

“It is simply not believable that Forge directors waited until late November 2013 to tell investors of problems with the power station contracts, when it knew or ought to have known about them much earlier in the year," she said.

“A number of shareholders – retail and institutional – have expressed their anger to us about their treatment at the hands of Forge. We expect to see a large number of shareholders sign up to the action, as the most effective avenue to compensation for losses suffered."

The contractor told shareholders at its annual general meeting in October last year that it was "positioned well for continued success".

Forge has appointed Ferrier Hodgson partners Martin Jones, Andrew Saker and Ben Johnson as voluntary administrators of the company.

ANZ has consequently appointed KordaMentha partners Mark Mentha and Scott Langdon as receivers and managers.

Shareholders who purchased shares in Forge after January 1 2013 and held some or all of those securities at any time between November 4 2013 and February 11 2014 may be eligible to participate in the claim.

IMF said it would fund legal proceedings subject to securing a level of acceptable shareholder participation.

Forge administrators will hold a first creditors meeting in Perth tomorrow.