Sydney investment firm London City Equities has won its bid to bring an expanded case against Ernst & Young, for the accounting giant’s auditing of now collapsed chemical manufacturer Penrice Soda Holdings.
Penrice went under in 2014, with London City recounting some $270 million being lost by investors and banks. The investment firm was a major shareholder and it recorded $6.7 million of book losses arising from its investments made in Penrice in 2008 and 2009.
London City’s extended claims seeking damages include alleged failures by EY to conduct successive audits with due care and skill, negligent misstatements, breach of duty of care and resistance against ASIC demands for inventory reclassification.
The Supreme Court of NSW found there was a tenable case on the question of duty of care owed to shareholders altering their behaviour on the basis of EY’s conduct as auditors.
London City had submitted its amended statement of claim last year in which earlier claims had been expanded to include new allegations arising out of “notice to produce” discoveries.
Following the new ruling, London City has instructed its legal advisers to expedite a full hearing in the Supreme Court of NSW on the matter.
London City posted net gains during financial year 2019 of $657,000, down 37 per cent from the prior year. It noted costs had increased by due legal expenses incurred in its court action against EY.
The investment firm first acquired a stake in Adelaide-based Penrice in 2008, when it bought 9 per cent of the manufacturer. After six months, the investor stated it noted issues and a number of its attempts to gain board representation failed.
London City initially took legal action against EY in 2017.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
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