Prosecution of James Hardie
After the close of trading of the Australian Stock Exchange on February 14, 2007, Australia's Corporate Watchdog2 announced that civil proceedings against James Hardie Industries NV and others had been commenced in the Supreme Court of New South Wales, Australia.3 The ASIC alleges that the company, a former subsidiary, and various executives contravened provisions of the Corporations Law and of the Corporations Act during the period February 2001 to June 2003 which relate to the company's attempt at asbestos separation.4 According to the Associated Press:
"The ASIC claims James Hardie and its executives 'failed to act with requisite care and diligence' when they told investors in 2001 that the company's asbestos compensation plan was fully funded when it was short A$1.3 billion (US$1billion; Euros 760 million)."
Less than one week after the ASIC case was announced, three James Hardie officers resigned from the Board, citing the ASIC proceedings; they were Chairman Meredith Hellicar and non-executive directors: Michael Brown and Michael Gillfillan. Two days later (Feb. 22) the company's shares fell 4%, their biggest fall in four months, and the company delayed issuing their third-quarter earnings report.5 It is little wonder that investors are concerned: an Australian academic has predicted that the case, including appeals, could run for years and cost the company millions of dollars.
To further compound Hardie's problems, on February 24, reports were published that the ASIC may initiate criminal proceedings against Hardie for contempt of court over its asbestos compensation scandal.6 Legal experts felt it was probable that the ASIC would recommend that the commonwealth Director of Public Prosecutions lay criminal charges for, among other infringements, criminal, misleading or deceptive conduct.
James Hardie executives might well have thought that they had bought their way out of trouble by offering to stomp up A$4 billion (US$3.1 bn) by 2047; these funds will be paid into Hardie's Australian-based Asbestos Injuries Compensation Fund with an initial installment of A$184 million being received by the Fund's New South Wales bank account on February 10, 2007; a smaller payment is due on July 1, 2007 and annual contributions will be received thereafter.7 Even A$4bn may not, however, be enough as KPMG estimates that the company's total asbestos liabilities could be as high as A$5.5 bn (US$4bn) which exceed the company's current market capitalization of US$3.5bn.8 There is speculation that following recent changes to U.S. and Dutch tax laws, the company may relocate its headquarters once again with a U.S. destination looking likely.
February 23, 2007
2 The Australian Securities & Investments Commission (ASIC).
3 Company Statement by James Hardie 15 February 2007.
4 Asbestos Separation refers to attempts by James Hardie, formerly Australia's biggest asbestos group and nowadays a major player in the U.S. building industry, to outsource its asbestos liabilities to an under-funded Australian body in 2001 when the company relocated its headquarters and assets off-shore (to the Netherlands).
5 Steffens M. James Hardie Shares Sink. February 22, 2007.
6 Higgins E. Criminal Case likely against Hardie. February 24, 2007.
7 James Hardie shareholders meeting in Amsterdam approved the compensation package on February 8, 2007 after a 2-year dispute.