Troubled sandalwood oil producer Quintis has been hit with a third class action over the company’s lost contract with Nestle unit Galderma, and this time its auditor, Ernst & Young, has been named as a co-defendant.
The action, brought by Piper Alderman in the Federal Court in Sydney on Wednesday, alleges Quintis’ 2015 and 2016 financial reports overstated its profits and assets and that Ernst & Young engaged in misleading and deceptive conduct by signing off on them.
A spokesperson for Ernst & Young declined to comment Friday.
The case has been filed as a consumer protection action and is financed on an unconditional basis by funder Litigation Capital Management. Two other class actions — led by Bannister Law and Gadens Lawyers — have been brought under the Corporations Act and allege breaches of the company’s disclosure obligations to the market.
All three actions centre on a shock admission by Quintis — which is now in receivership — to the Australian Stock Exchange on May 10, 2017. The company told shareholders that its board and top management had been in the dark for months about a lost supply contract with Nestle subsidiary Galderma.
Galderma changed the formula used in its Benzac skincare line that contained Quintis sandalwood oil and had ceased its agreement with Quintis’s US-based unit Santalis in December 2016.
“The Board of Quintis was advised late yesterday that on 16 December 2016, Santalis and Galderma entered into an agreement that terminated Galderma’s licensing and supply arrangements with Santalis, with the termination to take effect from 1 January 2017,” the company told ASX. “Prior to yesterday’s advice, the fact and details of the contract termination had not been provided to current members of both the Board of Quintis and its senior management (outside of Santalis).”
The Piper Alderman case alleges that in both 2015 and 2016, the Perth-based company’s financials did not give a true and fair picture of the position and performance of Quintis but significantly overstated the value of its assets and profits. It also claims that by signing off on those financial reports, Ernst & Young was negligent and engaged in misleading or deceptive conduct in breach of the Australian Consumer Law.
LCM said Friday its funding arrangement with Piper Alderman had been revamped from an earlier proposal, soon after the shock admission, to provide financing on a conditional basis.
“The class action that commenced today differs significantly from this earlier proposed funding of a claim which LCM was investigating with Piper Alderman and also from the two other class actions against Quintis which commenced in the intervening period,” the funder said.
The action is brought by Geoffrey P. Davis as trustee of the G.P. Davis Superannuation Fund on behalf of Quintis shareholders who bought stock between August 31, 2015 and May 15, 2017. Quintis director Frank Wilson is also named as a defendant.
Bannister Law’s shareholder class action against Quintis was the first to be filed, in September 2017. Gadens filed in November. Both cases, proceeding in Federal Court, name Quintis and Wilson as defendants.
The Piper Alderman case is Geoffrey Peter Davis v Quintis & Ors.
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