Freedom Foods and former top brass sued by ASIC over alleged continuous disclosure failures

Allegations of continuous disclosure failures, breaches of company director and officer duties, and false or misleading conduct have landed Freedom Foods Group - now Noumi Limited (ASX: NOU) - and the company’s former CEO and CFO in hot water.

Announced today, the Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings in the Federal Court against the company, former managing director and CEO Rory Macleod and former CFO Campbell Nicholas.

According to the watchdog, the company is alleged to have failed to disclose material information about the value of inventories in its financial reports for the full year ending 30 June 2019 and the half year ending 31 December 2019.

It is also alleged to have failed to disclose material information about its sales revenue, gross profit and profit after tax in its financial report for the half year ending 31 December 2019.

Freedom Foods, which changed its name to Noumi on 30 November 2021, manufactures and sells dairy and plant-based beverages and nutritional products including brands like Milklab, Australia’s Own, So Natural and Vitalife.

“Directors and officers have a fundamental responsibility to ensure that their organisations comply with the law,” ASIC deputy chair Sarah Court says.

“However, in this case ASIC alleges Freedom Foods’ former CEO and CFO misled investors, auditors and directors, and allowed their company to breach continuous disclosure laws by failing to disclose a significant write-down, leading to an uninformed market.”

As for the two executives, the watchdog alleges Macleod and Nicholas were involved in Freedom Foods’ failures to disclose this information and that by allowing these failures they breached their duties as a director and officer.

Further, ASIC alleges that Macleod gave false or misleading information to directors, auditors and shareholders of Freedom Foods, as well as the ASX, by representing that the full-year and half-year reports were accurate. Nicholas is alleged to have provided false or misleading information to auditors and directors too.

“When directors and officers fail in their obligations, as we allege in this case, they not only cause harm to investors by denying them the information they are entitled to, they also erode confidence in Australia’s financial markets,” Court says.

“ASIC is continuing its focus on potential breaches of company officer and director duties, and we will continue to take court action seeking penalties and other sanctions in appropriate matters.”

Noumi says it is currently reviewing ASIC’s statement of claim.

“Given that the matter is before the court, Noumi will not be providing commentary in relation to the progress of these proceedings but will continue to comply with its continuous disclosure obligations,” Noumi says.

ASIC’s move is the latest legal headache for Noumi which is already embroiled in a class action law suit relating to allegedly misleading statements made to shareholders.

Initially separate class actions, Slater & Gordon and Phi Finney Mcdonald have since had their law suits combined by the Supreme Court of Victoria and are representing aggrieved shareholders alleging Freedom Foods improperly capitalised certain expenses and failed to write off inventory.

The class action claims these accounting practices, signed off by Deloitte, contravened accounting standards and resulted in Freedom Foods significantly overstating its financial position and performance in its annual and half yearly reports.

Freedom Foods was suspended from trading on 25 June 2020, following the publication of a trading update in which the company announced it had to write down the value of obsolete and out-of-date stock to the value of approximately $60 million.

Later that month, managing director and CEO Rory Macleod resigned from all board and executive positions at Freedom Foods - replaced by Michael Perich in the top role.

Nine months later, Freedom Foods emerged from a trading halt and saw its shares dive 78 per cent that day, spilling to levels well short of the offer price for a $265 million capital raise mostly aimed at paying off debt.

In the period since, Freedom Foods changed its name to Noumi but has never been able to push its share price back up to 2019-20 levels.

Noumi is yet to report its finalised 1H23 results, but in a trading update from January the company  said total Q2 revenue rose 4.2 per cent to $145.8 million, buoyed by strong sales growth for its Milklab alternative milks business.

Shares in the Noumi are down 14.8 per cent to 12 cents per share at 11.06am AEDT.