Noumi, the company behind brands such as Milklab, Australia’s Own, and So Natural, has been fined $5 million by the Federal Court.
The ASX-listed company was dealt the fine after Justice Ian Jackman found that it had failed to write off expired inventory and declare that certain invoices would never be paid.
The Court found Noumi, when it was trading as Freedom Foods Group (FFG), failed to disclose material information about the value of inventories in its financial reports for the full year ending 30 June 2019 (FY19) and the half year ending 31 December 2019 (HY20).
Those accounts were overstated by $31.77 million in FY19 and $36.6 million in HY20 as a result of the inclusion of the unsaleable inventory.
“If such information had been disclosed, it is even more likely to have affected the price of FFG’s shares,” said Justice Jackman in his ruling.
The Australian Securities and Investments Commission (ASIC) filed proceedings against Noumi and its former Managing Director and CEO Rory Macleod and its former CFO Campbell Nicholas in February 2023.
It is alleged that from around June 2018, Macleod had put in place a standing policy that stock was not to be disposed of or written off unless Macleod himself gave permission to do so. FFG is alleged to have been holding so much obsolete, rejected or expired stock that it leased additional warehouses in Shepparton and Mooroopna to hold it.
In early 2019, Stephanie Graham, FFG’s former Group Financial Controller and then General Manager of Commercial Strategy, attended two warehouses leased by FFG near the Shepparton Site, photographed the stock she observed in the warehouses and showed the photos to Macleod and Nicholas.
In November 2019, Nicholas sent a text to Graham stating: “I have just walked through all the hidden factories at Shepparton – holy holy crap!”. Graham responded: “yep, photos don’t do it justice”.
Justice Jackman said due to the failure to disclose relevant information to the market, it raised questions as to whether FFG was operating at an overall loss in FY19 and FY20.
FFG’s Restated Results announced that the value of profit or loss before tax for HY20 was restated from a profit of $6.9 million to a loss of $50.2 million.
The Federal Court judge said that the omission of relevant information from FFG’s reports was “deliberate, or at least reckless” conduct by Macleod and Nicholas.
“FFG’s failure to disclose the relevant information to the market forms part of a course of conduct that spanned eight months and two financial reporting periods. It therefore cannot be said to be isolated, or a momentary lapse in judgement.”
Genevieve Gregor, Noumi Chair, said over the past four years, the Noumi Board and leadership team have been actively resetting the business to focus on sustainable growth.
“This includes managing the legacy legal issues that relate to its history as Freedom Foods. The closure of the ASIC matter represents a pivotal milestone for the Company and will enable the Board and leadership team to focus more time and resources on growing the business.”
The Court has also ordered that the penalty be paid in instalments of $2 million payable within 28 days of judgment, $1.5 million within 12 months of judgment, and a further $1.5 million within 24 months of judgment. The company will pay a contribution to ASIC’s costs of $50,000 within 28 days of judgment.
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