Gone sour: Executives behind Milklab maker’s implosion to face court

The Australian Securities and Investments Commission is suing Noumi (formerly Freedom Foods) and two former top executives who exited the company days before it unveiled a multimillion-dollar company writedown that brought the Milklab manufacturer to its knees and forced a continuing business turnaround.

The corporate watchdog alleges that former Noumi chief executive Rory Macleod and former chief financial officer Campbell Nicholas were involved in providing misleading information about the company’s financial position, breaching director and officer duties and failing disclosure obligations by doing so. Noumi produces plant-based beverages Milklab and Australia’s Own.

Former Freedom Foods chief executive Rory Macleod will face the Federal Court.Credit: Peter Braig

The share price of Noumi, named as one of three respondents in the Federal Court proceeding, has seesawed today, plummeting nearly 15 per cent in early morning trading before lifting back into the green and then swinging back down 7.4 per cent in afternoon trading. It closed the day unchanged at 13.5 cents.

ASIC’s move to take the company, Macleod and Nicholas to court comes after a lengthy investigation that began in July 2020, sparked by the sudden resignations of then-CFO Nicholas on June 30 followed by then-CEO Macleod the following morning. ASX trading was suspended and shares dipped to a five-year low.

Later that week, the company revealed that its estimated value of useless assets, $25 million, was in fact $60 million. This figure would later be revised to $590 million after Freedom Foods redid several years of accounting for the 2019 financial year.

ASIC’s two-and-a-half-year investigation involved forensic accountants who examined the company’s financial records.

The corporate watchdog is seeking to send a message to other corporate leaders that ASIC is willing to act against management executives, not just board directors.

“This is a case about effectively breaches by senior officers of their duties,” said ASIC deputy chair Sarah Court. “So the significance of the case is that that can have significant ramifications for very senior executives for companies. It’s not just the non-executive directors that may be taken to task for these issues.”

ASIC is also alleging the pair gave misleading information to auditors and directors of the company.

“Continuous disclosure obligations are critical to mind maintaining confidence in the market because investors have to be able to be confident to the extent that there are any issues within a company that are likely to have a material impact on a share price, [that] the company will be disclosing those issues in accordance with its obligation,” said Court.

Noumi produces plant-based beverages Milklab and Australia’s Own.Credit: Janie Barrett

Freedom Foods was rescued by its majority shareholder, the billionaire Perich family, rebranded itself as Noumi in late 2021, and is rolling out a company turnaround.

After Noumi revealed its reinstated figures, high-profile law firm Slater + Gordon filed a shareholder class action lawsuit, followed by another from Phi Finney McDonald funded by Omni Bridgeway in late February 2021. The two class actions have been rolled into one proceeding.

In a statement to the ASX, Noumi said it had fully cooperated with ASIC’s investigation.

“Noumi is currently reviewing ASIC’s statement of claim,” the company said.

“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.”

ASIC is seeking declarations that the pair contravened sections of the Corporations Act, disqualification from taking up any corporate executive role for a period, penalties, and costs.

Court would not name a figure for how much ASIC was seeking in penalties but pointed to the Federal Court’s $15 million fine handed down to GetSwift, the highest for continuous disclosure breaches, a $2 million fine for former CEO Bane Hunter, and a $1 million penalty for former director Joel Macdonald. The pair were also disqualified from managing corporations for 15 years and 12 years respectively.

A court date for the proceeding’s first case management hearing is yet to be set. ASIC is represented by law firm MinterEllison.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.