SurfStitch expects the suspension of trade to last until its full-year results at the end of August, to allow it to potentially settle the law suit and continue to carry out its restructuring plans.
Law firm Quinn Emanuel filed an action in the Queensland Supreme Court this week alleging SurfStitch failed to tell shareholders it was trading at a loss and it tried to cover that fact up.
The retailer's shares have been in a trading halt since Wednesday while the board reviewed the claim.
In a statement to the ASX, Surfstitch says the complex nature of the claim means they need time to assess the situation.
"The high level of uncertainty around the negotiations with the litigation funder, and the company restructure, together with the need to assess the variety of options which may be available to the company in carrying out these processes, and the potential impact on the company's continued financial viability, will impact the company's ability to keep the market reasonably informed during the period that these processes are ongoing," the statement says.
The market capitalisation of Surfstitch has fallen rapidly from its peak in November 2015 of $590 million to its recent value of $18.9 million.
On Monday 22 April, the Gold Coast company announced its losses will double to as much as $11.5 million this year, sending its shares down more than 25 per cent.
The class action, backed by litigation funder Vannin Capital, is open to anyone who purchased or held Surfstitch shares between August 27, 2015, and June 8, 2016.
Documents filed with the court allege SurfStitch breached its disclosure obligations and engaged in misleading or deceptive conduct in relation to announcements made to the market concerning its extensive business and brand acquisition regime.
SurfStitch attributed the blowout in its latest forecast to weak apparel and footwear sales in its key markets.
It also announced it was going to close its US office and run its subsidiary SWELL platform from Australia.
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