IFM Investors has said that speculative and unfounded class action had been detrimental to contractor Tandem Corp, in which it held a 50% stake in and was put into administration, the manager told the Parliamentary committee last week.
IFM, which is owned by 23 superannuation funds, was considered last month as instrumental in the Tandem’s collapse which left many without jobs.
IFM said that although the class action brought by Shine Lawyers had never been to trial and had “no foundations”, it had taken its toll on the organisation.
IFM Investors, which bought into the company in 2016, said that through to towards the end of 2018 the business grew well and profitably, however the class action made it hard for the business to secure new contracts and, in particular, it made it harder for it to secure the funding needed to support its activities.
“Ultimately, despite Shine being alerted to the fact that their action was likely to cause the company to go into significant distress, they didn’t withdraw the action and that’s what happened,” IFM Investors’ chief executive, David Neal, told the parliamentary committee last week.
“If there’s an aggressive class action that’s unfounded and causes the sorts of problems that Tandem ended up in then yes, it would cause a problem to that asset and it may cause it to fail, as this unfortunately did in Tandem’s case.
Neal said he believed that at the end of June the directors of the company felt that they had no choice but to put the company into administration.
“That’s obviously their legal responsibility if they believe it can’t meet the liabilities as they fall due,” he added.
“I want to be really clear about this: the company—and this was reported in the court—paid those contractors $1.4 million, and the lawyers bringing the action themselves estimated that those same contractors would’ve been paid $800 million had they been employees.
“So, the business actually delivered an extra $600 million to those contractors. So, when we talk about workers’ entitlements, I think it’s really important that we understand that the workers, the contractors in this business, were actually doing extremely well under this model. The act of this class action has caused them to lose this flow of business.”
It was announced earlier that IFM’s shares in Tandem were sold to GenusPlus for $3.4 million.
Neal said the move would allow a number of employees to go over with those assets to retain their jobs.
“I think about 1,000 contractors will also maintain their work with that. That’s the directors working with the administrators to achieve a successful outcome, I suppose, in administration,” he said.
Asked by the chair of committee, Tim Wilson how much money had the investment made through IFM lost, Neal said he believed it would be a “significant amount” and that was a “very unfortunate outcome”.
“To be honest, I just don’t know the answer to that question. I don’t believe it would be as much as that, but it’s a significant amount and it’s not something we would like to share,” he added.
