Investors fail in Babcock and Brown appeal

Investors in the failed advisory firm, Babcock and Brown Limited, are counting the cost of their failed appeal against a ruling the group had failed to provide information that may have changed their investment decisions.

The Federal Court of Australia rejected the appeal by a group of 77 investors, who purchased shares in the company between 21 February 2008 and the day it enter voluntary administration on 13 March 2009.

The investors claimed Babcock and Brown breached section 674(2) of the Corporations Act and listing rule 3.1 of the Australian Securities Exchange (ASX), when it failed to disclose that:

• first, final dividends for the years 2005 to 2007 had been paid out of capital, rather than profits, contrary to the then s 254T of the Act and BBL's Constitution, and that its share capital had thereby been reduced contrary to s 256D (the final dividend information);
• secondly, BBL's financial reports for 2005 to 2007 did not give a true and fair view of its financial position in that the reports failed to disclose that final dividends had been paid out of capital and that share capital had been reduced in each financial year (the final report information); and
• thirdly, BBL was insolvent on 29 November 2008 (the insolvency information).

However the court ruled the appeal lacked "any substance", and ordered the investors to pay costs for Babcock and Brown and its liquidator, David Lombe.