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Source: ONE News
James Hardie Industries NV (JHINV) says it cannot pay asbestos compensation this fiscal year, meaning a fund for victims may run out of cash before 2011.
On a dramatic day for the company on Thursday, it and 10 of its former board members were also found to have breached the corporations act during the establishment of a previous compensation fund and a corporate restructure between 2001 and 2003.
Explaining the inability to pay asbestos liabilities in fiscal 2010, chief executive Louis Gries said the severe downturn in the US housing sector, where three quarters of James Hardie's revenues are made, would likely result in negative cash flow.
Under its funding arrangement with the Asbestos Injuries Compensation Fund (AICF), up to 35% of James Hardie's annual cash flow is handed over to the fund.
"It is anticipated that the free cash flow of James Hardie for the financial year ended 31 March, 2009, will be negative," the company said on Thursday.
"If James Hardie has zero or negative free cash flow in a financial year, there will be no annual payment made in the following financial year.
"Therefore, it is anticipated that the annual payment due on July 1, 2009, will be zero."
In March 2008, James Hardie expected the AICF's compensation liabilities over the coming three years to total $AU257.5 million.
At the end of last month, the AICF had $AU140 million remaining.
James Hardie would contribute again when net operating cash flow returned to positive, Gries said.
The AICF board is seeking talks with the NSW government and James Hardie to arrange alternative funding arrangements, with the latter suggesting possible payment through installments.
NSW Attorney-General John Hatzistergos said the state government would do everything possible to ensure compensation payments continued to flow to asbestos victims.
Board members misleading, says judge
Meanwhile, Justice Ian Gzell found the former board of James Hardie Industries Ltd (JHIL) misled victims and investors when establishing a previous compensation fund in 2001.
Heralded by ASIC as a landmark decision on corporate governance, the outcome could see each defendant, including JHINV, fined up to $AU200,000. The individuals also face disqualification from managing a company.
Penalties ensuing from the judgement will not be set until the defendants have a chance to argue for exoneration at a hearing on a date yet to be set.
Former James Hardie chief executive Peter Macdonald was found in breach of section 180(1) of the corporations act on nine occasions and former company secretary Peter Shafron breached the act on four occasions.
This section states a director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise.
The former chief financial officer Phillip Morley recorded two breaches, while the remaining non-executive directors, including former James Hardie chairwoman Meredith Hellicar, were each found in breach of the act once.
Hellicar stepped aside from her role as non-executive director of AMP Ltd after the judgement and will not seek reelection to that board.
At the centre of ASIC's allegations was that JHIL and its entire board made misleading and deceptive comments in a press release issued on February 16, 2001.
The release contained statements to the effect that James
Hardie's Medical Research and Compensation Foundation was fully
funded, offering certainty for asbestos victims.
Just two years later, it was found to be underfunded by more than
$AU1 billion.
A draft of the release, approved by the board one day prior to its distribution, "was expressed in too emphatic terms," Justice Gzell said in his judgement.
Macdonald committed an extra breach of the act by approving the final press release, while JHIL engaged in conduct that was misleading or deceptive by issuing the release, Justice Gzell found.
Further breaches were committed when the statements were repeated at a press conference, in subsequent press releases, and in a series of presentations Mr Macdonald gave in the UK in June 2002.
James Hardie Industries NV breached the corporations act by sending the slides from those presentations to the Australian Securities Exchange.
ASIC failed to prove that board members and the company misled shareholders over the issue of partly paid shares as part of James Hardie's restructure in 2003.
But ASIC chairman Tony D'Aloisio said all company boards should take notice of the court's decision.
"The decision is another important step in improving corporate governance in Australia and that improvement will add confidence to the integrity of our markets," he said.
James Hardie shares closed down 23 cents, or 5.16%, to $AU4.23.
