Sydney law firm Dennis & Co is organising a class action for shareholders in failed mining company Sons of Gwalia, in the process attracting the ire of listed litigation funding company and competitor, IMF (Australia).
Sydney law firm Dennis & Co is organising a class action for shareholders in failed mining company Sons of Gwalia, in the process attracting the ire of listed litigation funding company and competitor, IMF (Australia).
IMF is preparing a class action for 350 Gwalia shareholders while Dennis & Co claims to have signed up nearly 700 shareholders for its class action.
The competition between the two firms comes as Gwalia’s administrators are about to launch a Supreme Court test case that will determine whether Gwalia shareholders can rank alongside other unsecured creditors.
Freehills partner Konrad de Kerloy, who is advising the administrators, is expecting a protracted legal stoush.
“It’s a hot issue,” Mr de Kerloy said. “We are anticipating that issue will go to the High Court for resolution.”
IMF executive director Hugh McLernon agrees it will go to the High Court because he says relevant court decisions support IMF’s view that certain shareholders rank alongside other unsecured creditors.
Mr McLernon said he was only representing shareholders who acquired stock on-market after January 2003, when the company allegedly failed to keep the market continuously informed about its gold reserves and forward sales commitments.
The test case will provide a guide for all failed companies but is particularly important for Gwalia for two reasons. While the company is insolvent, it has substantial assets, in contrast to most failed companies.
Second, Gwalia does not have secured creditors, so all unsecured creditors are fighting for a share of the company’s assets.
Gwalia went into administration in August 2004 with debts in excess of $800 million.
The administrators have sold Gwalia’s gold assets to St Barbara Mines and are in the process of restructuring its tantalum assets to maximise their value.
Dennis & Co and IMF have fundamentally different approaches to the funding of their class actions.
IMF, which is backing about 30 separate class actions, takes a percentage of any payout, believed to be about 40 per cent.
It says the maximum value of its Gwalia action is $15 million.
In contrast, Dennis & Co charges a one-off up-front fee of $500 (plus GST) to prepare a proof of claim and lodge the claim with the administrators.
If the matter progresses, the only other return it obtains is costs awarded by the court.
“In my way of thinking, this is the way for shareholders to band together,” Dennis & Co principal Bruce Dennis said.
“IMF are taking umbrage at this approach. They are taking every opportunity to attack us.”
IMF has lodged a complaint lodged with the legal services commissioner in NSW over Dennis & Co’s use of the Gwalia share register.
The Federal Court ruled that IMF was not entitled to have access to the share register yet Dennis & Co conducted its own mass mail out to shareholders.
Mr McLernon has also challenged the track record of Dennis & Co and its financial capacity to prosecute a lengthy and complex legal action.
