James Hardie: On the Run Again?
A corporate bombshell exploded onto the pages of the Weekend Australian newspaper when Journalist Ean Higgins revealed that James Hardie, formerly the largest manufacturer of asbestos products in Australia, was preparing to move itself even further from the reach of its Australian asbestos victims. Corporate plans to relocate from Europe to North America were disclosed in a James Hardie's exposé which appeared on April 19, 2008. The article: Hardie in Secret Move to the US contained information from secret company documents which set out the company's strategy for: separating the Australian operations, transferring assets from the Dutch parent company, and options relating to liabilities the biggest of which is the (Australian asbestos) compensation plan.1
It is likely that Hardie's relocation plans will, Journalist Higgins wrote cause deep concerns to Australian asbestos victims, unions and the NSW [New South Wales] Government, which secured a $4 billion deal in which Hardie will pay compensation to thousands of people over the next 40 years. The good news is that no mention is made in the documents obtained about the company's intention to scupper the asbestos deal; the bad news is that they contain a section entitled Demerger Options, which mentions asbestos payment deduction and related structuring issues and legal review of proposed structure re: Directors & Successor liability elimination of any options. Successor liability defines whether or not a company can be held liable for the actions of a former subsidiary; a discussion of this legal concept could be seen as an indication of an evolving legal strategy to avoid asbestos claims.
Documents cited in the Higgins article included the agenda of a two-day meeting earlier this year at which top executives agreed to ask Hardie's Board of Directors to approve resolutions to transfer assets and liabilities at a meeting due to take place on May 1, 2008:
The transfer of assets to a company called James Hardie Industries Inc. would occur the next day, and the Dutch parent company, James Hardie Industries NV, would be liquidated in June It appears that Hardie would incorporate in the US, with at least 50 per cent of its shares held by Americans. The fate of the operations in Australia, where the company began 120 years ago appears to hang in the balance
The 2001 relocation of James Hardie Industries to the Netherlands was widely condemned by Australian asbestos victims' groups and trade unions; in 2004, the company's behavior was censured by David Jackson QC, in an official 1,000 page report for the New South Wales Government.2 Jackson found that James Hardie and its executives had deliberately misled shareholders by reporting in 2001 that a sufficient sum had been set aside to compensate victims; corporate media releases to the Australia Stock Exchange were also misleading and breached the Australian Corporations Law as they constituted a false inducement to buy a security.3 Jackson recommended that the Australian Securities and Investment Commission (ASIC) investigate deceptive conduct by company officials.
As Hardie observers analyze the company's latest moves, the case against ten former company directors and executives who, the ASIC alleges breached their duties to Hardie of care and diligence prior to the move to Amsterdam is scheduled to begin in Sydney in September 2008.4 Given its track record, there is every reason to suspect Hardie's motives in its latest restructuring ploy. Asbestos victims and Hardie employees face months of uncertainty before news of the company's plans for its Australian and New Zealand operations is revealed and its commitment to the Australian compensation package is confirmed.
April 19, 2008