(Updates with judge’s comment in third paragraph.)
June 27 (Bloomberg) -- Centro Properties Group directors breached their duties under Australian business law when they signed off on financial statements that failed to accurately disclose the company’s debt, a federal judge ruled.
Centro’s 2007 annual report failed to disclose A$1.5 billion ($1.57 billion) of short-term liabilities by classifying them as non-current liabilities as well as failing to disclose $1.75 billion of guarantees of short-term debt of an associated company, Judge John Middleton said in a 189-page ruling issued today in Melbourne. The company also failed to disclose A$500 million of short-term debt at one of its units, the judge said.
“This proceeding is not about a mere technical oversight,” Middleton wrote. “The information not disclosed was a matter of significance to the assessment of risks facing” Centro and its unit Centro Retail Group, the judge said.
Centro, based in Melbourne, first announced a restructuring plan in 2009 after a debt-fueled U.S. buying spree backfired when the global financial crisis caused property values to plummet and borrowing costs to soar, leaving the company unable to refinance its ballooning debt. Centro, which managed about A$16.5 billion of shopping malls in Australia, New Zealand and the U.S., had about A$16 billion of debt across all its businesses as of Dec. 31, according to the company’s 2011 first- half results released Feb. 28.
Blackstone Real Estate Partners VI LP, a unit of the world’s biggest private-equity firm, agreed to buy Centro’s 588 U.S. malls in March for $9.4 billion. The shopping-mall manager said on March 1 it also agreed to swap part of its debt for 108 Australian properties and will be left with about A$100 million.
“There has been no suggestion that each director did not honestly carry out his responsibilities,” Middleton wrote. In this specific instance, the judge said, “the directors failed to take all reasonable steps required of them.”
Centro said in a statement to the Australian Stock Exchange that it’s reviewing the ruling and will comment further later this week.
“The critical task of restructuring Centro in the best interests of all investors remains the priority,” the company said. “Today’s decision will not impact the progress being made on that front.”
The judge said he hasn’t yet decided on penalties in the case.
The case is: Australian Securities and Investments Commission v. Healey. VID750/2009. Federal Court of Australia (Melbourne).
--Editors: Garry Smith, Douglas Wong
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