Western Coal Class Action
Kim Orr Barristers P.C. has filed a $220 million class action on behalf of investors of Western Coal Corporation ("Western Coal"), a publicly traded company listed on the Toronto Stock Exchange (symbol WTN). In addition to Western Coal, the suit names Audley European Opportunities Master Fund Limited and a number of related Audley entities (collectively, "Audley"), Cambrian Mining PLC ("Cambrian") and certain current and former executives and directors of Western Coal.
The class action alleges that Western Coal, Audley and Cambrian engaged in a scheme to misrepresent the true state of Western Coal's finances in order to enable Audley and Cambrian to gain a controlling interest in Western Coal on highly favorable terms. The suit also alleges that certain Western Coal executives purchased shares of Western Coal with the benefit of inside knowledge that had not been publicly disclosed, in violation of securities laws.
The claim alleges that the Defendants used three principal financial transactions in order to gain a controlling interest in Western Coal:
- A financing agreement with Audley, which is described in further detail below;
- Cambrian's purchase and subsequent sale of mining company Falls Mountain Coal to Western Coal, which occurred between April 2007 and May 2008; and,
- A $5 million loan from Cambrian to Western Coal in September, 2007. The re-pricing of this loan in December 2007 allowed Cambrian to receive approximately 3.13 times more shares that it would have received under the original terms of the September 2007 Loan.
The claim alleges that through these transactions, Cambrian and Audley were able to significantly increase their holdings in Western Coal on highly favourable terms. This had the effect of diluting the Class Members' holdings in Western Coal.
The Audley Financing
On November 14, 2007 Western Coal released a news release that stated that the company did not expect to have sufficient funds in the near term to meet its financial obligations as they became due. As a result, shares of Western Coal plunged from a high of $1.75 on November 14 to a low of $0.47 on the following day.
Seven days later, on November 22, 2007 Western Coal issued a news release announcing that it had entered into a financing agreement with Audley European Opportunities Master Fund Limited, an investment fund which held approximately 29 per cent of Cambrian at the time of the November 14, 2007 news release. Cambrian, in turn held approximately 42 per cent of Western Coal at that time. During this seven-day period, company insiders purchased 111,000 shares of Western Coal.
The terms of the Financing included issuance to Audley of senior convertible debentures that would be convertible into common shares of Western Coal at a conversion price of $0.75 per share and that would bear interest at the rate of 8.5% per annum, as well as warrants to purchase up to 4.24 million common shares at a price of $0.75. The claim alleges that as a result of the Financing, Audley was able to acquire shares and warrants in Western Coal at a fraction of the shares' value prior to the November 14 news release.
Motion for Certification and leave under Part XXIII.1 of the Securities Act
The claim alleges that the Defendants are liable under Ontario's securities legislation for influencing, authorizing, permitting or acquiescing in the release of the November 14, 2007 press release. The claim alleges that given the pre-existing relationship with Audley, the Defendants knew or ought to have known at the time of the November 14, 2007 announcement that Western Coal was going to obtain the financing from Audley, which would allow them to meet their financial obligations. The claim also seeks damages in conspiracy and oppression.
The class action is being brought on behalf of all investors who acquired, held or sold Western Coal's shares between April 26, 2007 and July 13, 2009.
The Plaintiff will bring a motion before the Ontario Superior Court of Justice seeking to have the action certified as a class action and for leave to assert the causes of action under Part XXIII.1 of the Ontario Securities Act. The motion is scheduled to be heard on June 11-13 and 18-23, 2012.
For further information regarding this lawsuit, please contact Megan McPhee at mbm@kimorr.ca