The Guardian 21 February, 2007

ASIC goes after Hardie



The Australian Securities and Investment Commission (ASIC) announced last week that it had commenced civil penalty proceedings against James Hardie Industries and members of its board for failing to properly fund a foundation it set up to pay compensation to asbestos victims.

Those being charged include company chair Meredith Hellicar and current and former board members including disgraced former chief executive Peter McDonald and its former in-house council Peter Shafron. These three allegedly designed the grossly under-funded scheme.

The civil penalty action by ASIC arises out of the period of February 2001 to June 2003 during which James Hardie Industries substantially restructured its company and moved to the Netherlands — one of two countries with which Australia does not have a treaty for the enforcement of civil court judgments.

James Hardie shareholders voted to support a new compensation package to foot the bill in full on February 7.

ASICS’s investigations continue. Others who may be in ASIC’s sights are Hardie former chief financial officer Phillip Morley; director Michael Brown who is also on the boards of Wattyl and Repco; former director Peter Willcox who is also a Telstra director and who last week stood aside as chairman of the CSIRO.

The trade union movement and asbestos victims’ groups have fought a long, hard battle for compensation. The Australian Council of Trade Unions has called on the Howard Government to tighten corporations law to prevent companies from restructuring their operations to avoid their financial obligations.

Background

From 1937 the Hardies Group structured its operations so that the manufacture and supply of asbestos products was undertaken by subsidiary companies, most importantly James Hardie & Coy Pty Limited (Coy) and Hardie-Ferodo (later Jsekarb).

Coy was the principle source of income for James Hardie Industries until the mid-1990s.

Between 1995 and 2000 the James Hardie parent company undertook a process of stripping assets from Coy but leaving it with the bulk of the Hardie groups’ asbestos liabilities.

In February 2001 James Hardie established the Medical Research and Compensation Foundation (MRCF) with $293 million in assets including what was left of the asbestos manufacturing subsidiaries Coy and Jsekarb.

As part of this move Coy and Jsekarb indemnified the James Hardie parent company for any asbestos liabilities.

Hardie CEO Peter Macdonald told the Australian Stock Exchange and Australian public the trust was fully funded and would be able to meet all legitimate asbestos compensation claims into the future.

In October 2001, the NSW Supreme Court approved an application from James Hardie to move to the Netherlands and set up as a Dutch company taking with it $1.9 billion in assets from its former Australian companies. The court was assured these assets would be available if needed to meet the claims of Australian creditors, including asbestos victims.

In March 2003, the Dutch based James Hardie severed its final links with its former Australian asbestos producing entities and cancelled the capacity for them to call on the $1.9 billion to pay asbestos victims should this be required.

James Hardie did not advise the NSW Supreme Court, the NSW Government or the Stock Exchange of the cancellation of the $1.9 billion lifeline.

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