Federal Court finds beauty company breached continuous disclosure laws

The Federal Court has found that McPherson’s Limited breached continuous disclosure laws and engaged in misleading or deceptive conduct in relation to its October 2020 profit forecast.

It comes after ASIC commenced civil penalty proceedings in the Federal Court against the company and former CEO and managing director Laurence McAllister in December 2022.

The court also found that McAllister breached his duty of care and diligence as a director and authorised the company’s provision of false or misleading information to the ASX.

McPherson’s is listed on the ASX and provides its products in Australia and overseas. Its business includes six core brands: Manicare, Lady Jayne, A’kin, Swisspers, Fusion Health, and Dr LeWinn.

According to ASIC, McPherson’s provided earnings guidance to the market that forecast growth in profit before tax, underpinned by the purchasing forecasts of its high-margin Dr LeWinn skincare product line.

The court found that by 12 November 2020, following an online sales event in China, McPherson’s had become aware that actual sales and purchasing forecasts of Dr LeWinn products were well below expectations and its profit forecast no longer had a reasonable basis. As such, corrective disclosure was required.

McPherson’s failed to correct the market for nearly three weeks. When it downgraded and withdrew its earnings guidance on 1 December 2020, the company’s share price fell 34.5 per cent.

The court found that McPherson’s breached its continuous disclosure obligations and misled investors by failing to disclose its revised purchasing forecasts and sales results for Dr LeWinn products, and withdrawing the October 2020 profit forecast, between 12 November and 30 November 2020.

Commenting on the Federal Court ruling, ASIC chair Sarah Court said: “Today’s decision reinforces that listed entities must act promptly when information emerges that materially alters previously disclosed earnings guidance.

“Delays in disclosing material information or correcting market expectations can undermine market integrity and investor confidence. Directors and officers have a clear obligation to ensure material information is escalated, properly considered and disclosed to the market when required. They must act when earnings guidance may no longer be reliable.”

In handing down the liability judgment, Justice Markovic said that “the materiality of the information was foreseeable”.

“In my view [McPherson’s] was negligent as to whether the information would, if it were generally available, have a material effect on the price or value of MCP’s shares.”

Her Honour also said: “Mr McAllister put [McPherson’s] in a position where it was at risk of contravening the Corporations Act and the ASIC Act and exposed it to the risk of civil penalties.

“It was in my view, reasonably foreseeable that this would be a consequence of his action, or more relevantly, inaction. Mr McAllister failed to exercise the degree of care and diligence that a reasonable person acting in the role of CEO and MD would have exercised given the matters of which he was aware at the time.”

The matter will return to court for a hearing on penalty and relief.