Slow movement on Quintis, EY class actions

Edmund TadrosProfessional services editor

May 14, 2019 – 12.30pm

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Two shareholder class actions over sandalwood grower Quintis, targeting the company and EY, continue to wind their way through the Federal Court.

Quintis went into administration last January after facing liquidity problems when the now-defunct activist short-seller Glaucus published a damning thesis on the stock in 2017 with a zero-dollar price target. Quintis forcefully refuted the allegations made by Glaucus.

The case is one of a number of current and settled class actions that have roped in the big four consulting firms over their auditing and consulting work.

EY audited Quintis' accounts in 2014-15 and 2015-16, the two years which preceded more than $300 million in writedowns. Its biological assets were valued at $624.6 million in 2014-15, thanks to a revaluation of $136.6 million, and $771.2 million in 2015-16 after a revaluation of $76.9 million. EY has denied any wrongdoing in its accounting work.

Three class actions about the collapse have now been consolidated into two matters.

The consolidated case alleges that certain matters were not disclosed to investors in breach of the company’s disclosure obligations.

The third class action alleges Quintis improperly inflated the value of its Indian sandalwood trees which represent the group's biological assets and did not comply with relevant accounting standards.

The third claim also alleges that Quintis’ auditor EY "engaged in conduct that was misleading or deceptive, and was negligent" and that the financial reports issued by Quintis and audited by EY did not accurately depict the financial position of the company.

The Australian Securities and Investments Commission is also pursuing a separate civil action in the Federal Court against Quintis founder Frank Wilson, alleging the former boss of the sandalwood group knew a key supply contract had been terminated, but did not tell the Quintis board. Mr Wilson denies the allegations.

Quintis has now recapitalised as a private outfit. The company went through a Deed of Company Arrangement last year which means the only assets available to meet any successful shareholders claims are limited to any insurance Quintis may have. The EY case is not affected by this move.

The consolidated case is funded by Ironbark and run by Gadens and the third case is funded by Litigation Capital Management and run by Piper Alderman partner Simon Morris and is due for the case management hearing in the Federal Court on May 23.

Edmund Tadros leads our coverage of the professional services sector. He is based in our Sydney newsroom. Connect with Edmund on Twitter. Email Edmund at edmundtadros@afr.com.au