Billabong International Limited (ASX: BBG) has seen its share price rise by more than 5% today to $1.38, after announcing it will pay $45 million to settle a class action.
The surfwear company today announced that the financial impact was immaterial and was already provided for in previous financial reports. Shareholders will no doubt be happy that the court case is no longer hanging over the company's head.
The case began in 2011, after shareholders alleged that Billabong had engaged in misleading and deceptive conduct and had not met its continuous disclosure obligations. Slater & Gordon Limited (ASX: SGH) had taken on the case on behalf of shareholders.
However, Billabong said the announcement that settlement of the case was by no means an admission of liability. So much for the comments from management at the time of the claim (March 2015) that it "wholly rejects and intends to vigorously defend the claim".
Interestingly, virtually no shareholder class action has proceeded through court – with almost all settled out of court and the defendant claiming that it was not an admission of liability or guilt.
The agreement between Billabong and law firm Slater & Gordon still needs to get High Court approval but that appears highly likely.
Interestingly, a Billabong spin off, Surfstitch Group Ltd (ASX: SRF) could also be facing a shareholder class action for similar allegations, following a similar set of profit downgrades.
Foolish takeaway
The odd thing about these shareholder class actions and settlements is that the litigation replaces the actions the regulator ASIC probably should have taken. That could result in some negative consequences including directors responsible for breaches not facing court.
