‘Close to going over the edge’: Ex-CFO fined over Milklab cover-up

Former Freedom Foods (now Noumi) chief financial officer Campbell Nicholas has been fined $100,000 and banned from managing corporations for four years for his part in concealing warehouses full of useless stock in a cover-up that affected his mental health, damaged his relationship with his family and drove him to drink every night.

Federal Court Justice Ian Jackman ruled that Nicholas ultimately bore responsibility for deliberately misleading the board of directors on revenue and inventory figures. The Milklab operator was forced to restate accounts that revealed write-offs of $590 million, a nine-month suspension in trading, a crash in the share price that is still rock-bottom and a shareholder class action.

The Federal Court has handed down the penalty for former Freedom Foods CFO Campbell Nicholas’ role in keeping quiet about millions in useless stock.Credit: Janie Barrett

Nicholas had felt pressured by former Freedom Foods chief executive and managing director Rory Macleod, whom he felt had “complete authority and control over all messaging to the board”, Justice Jackman stated, citing evidence provided by Nicholas to ASIC.

The then-chief financial officer felt Macleod had created an “autocratic” corporate culture and environment where Nicholas didn’t feel he could be frank with the board of directors and tell them about the inventory and revenue issues he was aware of.

By early March 2020, the pressure Nicholas felt from Macleod to keep quiet about the mounting volume of expired, rejected or otherwise obsolete stock for nearly a year at that point was starting to significantly affect his mental health.

Former Freedom Foods CEO Rory MacLeod. Credit: Peter Braig

“He was drinking more than a bottle of wine every night, his relationship with his wife and family had broken down, and he felt as though he was close to going over the edge from the stress,” the Federal Court judgment stated.

However, Justice Jackman noted that Nicholas nonetheless had an “important and vital role” in the company’s management and governance, interacted and reported directly to the board, and carried responsibility in his capacity as the company secretary and disclosure officer on top of his role as chief financial officer.

“He provided direct representations to the board, in which he asserted there were no problems with the financial statement when he knew that to be false,” Jackman said.

In submissions to the court, Nicholas has admitted to all contraventions and accepted he should pay a penalty, expressed contrition, remorse and apologised unreservedly for his conduct.

ASIC deputy chair Sarah Court said Nicholas’ actions, all the more serious because of his seniority, were a serious breach of ethical and legal obligations.

“Companies have a fundamental responsibility to ensure compliance with their continuous disclosure obligations,” Court said. “By failing to do so, they not only cause harm to investors, by denying them the information they are entitled to, [but] they also erode confidence in Australia’s financial markets.”

Noumi declined to comment.

The Federal Court’s ruling means that ASIC’s case against Noumi, brought in early 2023 following an investigation that began in July 2020, is nearing an end. The legal proceedings have been brought against three defendants: Noumi, Nicholas and Macleod. Jackman has ordered Noumi to pay $5 million in a recent judgment that revealed fresh details about how the cover-up unravelled.

Federal Court judge Ian Jackman is presiding over the case of ASIC vs Noumi, Macleod and Nicholas.

The company changed its name from Freedom Foods to Noumi in November 2021 and received significant backing from its major shareholders, the billionaire Perich family, with Michael Perich installed as chief executive.

Noumi recently tied off a number of lawsuits and is still in the midst of others. Earlier this week, the company announced it had settled a shareholder class action brought by Slater + Gordon and Phi Finney McDonald for an amount to be disclosed later this month once approved by the Supreme Court of Victoria. The settlement sum will be covered by insurance and former auditor Deloitte, which is also a party in the settlement.

Noumi has already had to pay $48 million and $860,000 in legal costs to settle a dispute with a former supplier and Almond Breeze producer, Blue Diamond. It also settled with French tea and coffee company Sunday Collab International for $400,000 after former world surf champion Joel Parker accused Noumi of walking away from an alleged deal.

While Milklab is still a strong-performing brand in the plant-based milk market, the company is struggling to be profitable and has been hit by rising operational costs, lower sales from export markets and a more reluctant, cost-conscious consumer.

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