Hardie Spent $6m On Asbestos Cases

Sydney Morning Herald

Thursday July 10, 2008

Elisabeth Sexton

JAMES Hardie Industries spent $6 million in the year to March on defence expenses for the coming civil penalty case on asbestos compensation.

The cost is likely to be much higher this financial year when the suit from the Australian Securities and Investments Commission comes to trial.

Hearings are due to start in the Supreme Court on September 29 and are expected to run well into next year.

In its annual report filed in the US overnight on Tuesday, the company said: "Losses and expenses arising from the ASIC proceedings could have a material adverse effect on our financial position, liquidity, results of operations and cash flows."

But the Australian taxpayer could foot the bill if ASIC fails to prove its allegations of misleading or deceptive conduct in relation to shares and breaches of directors' duties.

ASIC is suing the Dutch parent company, the former Australian parent company and eight former executives and directors involved in the 2001 establishment of an asbestos compensation trust which was later revealed to be grossly underfunded. The individuals and companies are defending all allegations.

Part of the defence costs are being advanced by "third parties," presumably a reference to the company's professional indemnity insurers.

James Hardie is paying the balance for the individual defendants under deeds of indemnity and articles of association.

The report says that if ASIC succeeds against any of the individuals, the terms of their indemnities might require them to reimburse the company.

Meanwhile, James Hardie continues to transfer funds under new compensation arrangements negotiated with the NSW Government.

The Asbestos Injuries Compensation Fund, which received $184 million when it was set up in February 2007, will receive $115 million this financial year. That is 35 per cent of James Hardie's net operating cash flow in the year to last March, in line with a formula agreed with the Government.

The fund paid claims to sufferers of asbestos diseases of $74 million in the year to March. A report from KPMG Actuaries estimates that claim payments will be $81 million in 2008-09 and $83 million next financial year.

The firm's latest estimate of the fund's total future liability is $1.426 billion in 2008 dollars. It expects annual payments to peak at $147 million in 2021.

In 2001, James Hardie set aside $293 million, saying that was "sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products."

© 2008 Sydney Morning Herald

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