Grant Thornton faces potential class action over ASX disasters from China

Preparations are underway for a lawsuit representing investors in Chinese companies that have been delisted from the Australian stock market.

Work has begun on a class action covering thousands of investors in China-based companies that proved to be disasters after joining the Australian sharemarket.

The action would focus on the common thread between the eight — giant accounting firm Grant Thornton. One of its smaller Australian offices audited all the companies.

Those doing the groundwork towards a class action held large stakes in XPD Soccer Gear Group.

These investors — and the lawyers they are collaborating with — are considering whether to open the action to shareholders in the other seven delisted companies.

Former top 20 shareholder in XPD Craig McGrath is working on a class action. Picture: Mark Stewart

No action has been filed yet.

The prospects of a case proceeding against XPD appear to hinge on further progress in long-running legal proceedings in China.

Those proceedings have been funded by a major shareholder, Singapore-based money manager ACA Partners.

The proceedings were brought with the aim of obtaining access to the bank accounts and records of XPD’s manufacturing subsidiary, Chaoda, which was thought to have as much as $50 million in cash.

The court in China ordered Chaoda to hand over documents including financial statements.

But instead, in August this year, Chaoda said its older records had been destroyed in a fire in 2016 and that more recent accounts were in disarray.

XPD insiders say the explanation is implausible. But they have become used to the unusual and are undeterred.

XPD joined the Australian Securities Exchange (ASX) in 2015 after raising $15 million in a float.

Those investors got a combined 18 per cent stake for their money.

So XPD as a whole was worth $85 million.

It reported annual revenues of more than $100m a year for three years, and cumulative profits of about $45m over that time.

These results were enough to attract the backing of wealthy Queensland businessman Soheil Abedian, whose ASX-listed property development company Sunland built the Palazzo Versace and Q1 on the Gold Coast.

Soheil Abedian at the top of Q1. Picture: Scott Fletcher

One of Mr Abedian’s private companies bought three million shares in XPD, then four million more.

XPD said it would pay a dividend to investors in 2017.

However it failed to do so.

After that promise was broken, the ASX queried undisclosed large share trades connected to figures including CEO Jiameng Zhang. Trading was suspended for nearly a year.

In December 2017, ASX-listed investment company Mejority Capital said it was writing off the entire value of its stake in XPD, which had been worth more than $1m just 18 months prior.

XPD stock last traded in 2019 and was delisted in August last year.

It is one of at least 23 Chinese companies to be booted from the ASX since 2015.

As many as 2000 people who owned shares in XPD could be eligible to join a class action against Grant Thornton.

That figure would be several times larger if an action was extended to all the China-based ASX failures audited by that small Grant Thornton office.

Those companies were Eagle Health, China Waste Corporation, Shenhua International, Sunbridge, Yanghao, Premiere Eastern Energy and Xiaoxiao Education.

Mejority, now known as Finexia Financial, is involved in the preparations for a class action.

XPD CEO Jiameng Zhang. Picture: Regi Varghese

Finexia managing director Neil Sheather said: “We relied on them … to express an audit opinion.”

Mr Sheather became a director of XPD in 2018 in an attempt to right the ship.

He described Chaoda’s fire claim as “utter garbage”.

“We were never advised of that,” he said.

Mr Sheather said Finexia was “100 per cent” behind a potential claim against Grant Thornton.

On Thursday another top 20 investor, former Shell engineer Craig McGrath, met with a law firm interested in leading an action.

Mr McGrath, who lost over $400,000 on XPD, said he was “more hopeful” following the meeting.

“Now we have to work through a laundry list of items,” Mr McGrath said.

Mr McGrath and other investors met with lawyers on Thursday. Picture: Mark Stewart

Sunland’s Mr Abedian said he would “absolutely” be interested in joining an action.

But another top 20 investor Ray Munro expressed caution. He is not involved.

“I would think one would likely be on a beating to nothing suing the auditors,” Mr Munro said.

Any action would be brought in Australia.

A Grant Thornton spokeswoman said it had not received a claim.

“The last audit we completed for XPD Soccer Group was for the year end December 2018 and we issued a qualified audit opinion,” she said. “Given client confidentiality in audit matters we cannot provide further comment.”

She said Grant Thornton had nothing to add about any broader action.

Mr Zhang, who is believed to be in Macau, did not respond to a request for comment.

Any XPD investor interested in joining an action can email those working on it at [e-mail].