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Listed biotech Holista Colltech (ASX: HCT) has been slapped with a $1.8 million penalty for breaching its continuous disclosure obligations and making misleading claims regarding the sales of its broad-spectrum sanitiser product NatShield during the height of the pandemic.
The Federal Court issued the penalty this week following an investigation by the Australian Securities and Investments Commission (ASIC) into the Perth-based company over an ASX announcement purportedly detailing a significant order for Natshield in 2020.
Holista Colltech announced on 9 April 2020 that its exclusive US distributor Health Therapies LLC had lifted its order for NatSheild by an extra 415,000 bottles following an initial shipment of 9,558 bottles.
The additional sales of NatShield, which was said to be an effective sanitiser against COVID-19, were expected to be worth $3.8 million in revenue to the company.
However, the Federal Court found that the upsized order had not been placed when the company made the announcement.
Three months later, on 9 July 2020, Holista revealed as much when it scaled back its sales expectations for the FY20 half year to $500,000.
The Federal Court found Holista’s CEO Dr Rajendran Marnickavasagar failed to discharge his duties to Holista with sufficient care and diligence by permitting the company to contravene its disclosure obligations and making misleading or deceptive representations.
Marnickavasagar was also found to have made available or authorised false or misleading information in three documents. Apart from the announcement on 9 April 2020, the court found issue with two letters to the ASX dated 17 and 20 April 2020 regarding when a binding term sheet with Health Therapies had been signed.
On top of the $1.8 million penalty against Holista, Marnickavasagar has been ordered to pay a penalty of $150,000 and has been disqualified from managing a corporation for four years.
This is in line with an ASX announcement by Holista in September last year of its proposed settlement with ASIC.
Marnickavasagar has also agreed to pay $200,000 towards ASIC’s litigation and investigation costs.
Holista’s announced last September also noted that the company was considering a replacement for Marnickavasagar, who is a major shareholder in the company, with the replacement to be appointed on or before the date the ASIC orders come into effect.
Holista shares were placed in a trading halt yesterday pending the release of the Federal Court judgement.
“Holista engaged in serious contraventions of the Corporations Act and made misleading claims to investors,” says ASIC’s deputy chair Sarah Court.
“ASIC’s action highlights the importance of the need for strong corporate governance within ASX listed entities.”
ASIC and Holista are required to file submissions in relation to whether Holista may pay the penalty by instalments.
In handing down her judgment, Justice Derrington remarked on the harm done to investors and shareholders by continuous disclosure failures.
“They – shareholders and investors – are the persons for whom the continuous disclosure regime exists,” Justice Derrington said.
“Holista’s conduct had significant consequences for its financial position, and so for its investors, after the corrective disclosure.”
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