James Hardie Pays $6m In Legal Fees

The Age

Thursday July 10, 2008

Elisabeth Sexton

JAMES Hardie Industries spent $6 million in the year to March on defence expenses for the forthcoming civil penalty case relating to 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 NSW Supreme Court on September 29 and are expected to run well into 2009.

In its annual report filed in the US overnight, 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."

Another possibility is that 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 director's 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 that was later revealed to be grossly underfunded. The eight individuals and two companies are defending all allegations, the annual report says.

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 under the articles of association.

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

Meanwhile James Hardie is continuing to transfer funds under new compensation arrangements negotiated with the NSW Government during the furore over the previous underfunding.

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 sum is 35% of James Hardie's net operating cash flow in the year to March 2008, 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.

© 2008 The Age

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