ASIC has commenced proceedings in the Federal Court against Nuix Limited (ASX:NXL) for alleged continuous disclosure breaches and misleading or deceptive conduct. ASIC has also brought proceedings against members of the Nuix board for breaches of their directors’ duties.
ASIC alleges that Nuix made misleading or deceptive statements when reaffirming its Prospectus financial year 2021 forecasts for statutory revenue and for annualised contract value (ACV) in announcements to the ASX on 26 February 2021 and 8 March 2021.
ASIC alleges that at the time of these announcements, Nuix was aware that ACV for financial year 2021 was likely to be materially below forecast, which made those announcements misleading and gave rise to the need for corrective disclosure.
ASIC Chair Joseph Longo said ‘Nuix was a newly listed technology company with a complex business model. This meant investors relied heavily on the company making accurate and timely disclosures regarding its earnings.’
ASIC also alleges that Nuix breached its continuous disclosure obligations including by failing to:
- disclose its first half financial year 2021 ACV result from 18 January 2021 until 26 February 2021 when it published its half year results;
- make corrective disclosure regarding the announcements made to the ASX on 26 February and 8 March 2021, or announce a downgrade;
- announce a downgrade to its Prospectus forecasts from 13 April 2021 after financial year 2021 ACV and statutory revenue had been reforecast. A downgrade was not announced until 21 April 2021.
Nuix shares totalling $1.2 billion were traded during the period of the contraventions alleged by ASIC.
‘Nuix’s ACV result at the end of the first half showed that, far from growing rapidly at 18.5 per cent as the company had forecast for the full year, Nuix’s underlying business as measured by ACV had essentially shrunk by almost 4 per cent over the first half. It took the company over a month, until 26 February 2021, to disclose this material information to the market. Nuix had an obligation to promptly disclose this information,’ said Mr Longo.
ASIC further alleges that Nuix’s directors breached their directors’ duties by failing to take reasonable steps to prevent Nuix from making misleading statements and breaching its continuous disclosure obligations. Nuix directors who ASIC alleges breached their duties are Jeffrey Bleich (Chair), Rodney Vawdrey, Susan Thomas, Daniel Phillips and Sir Iain Lobban.
ASIC is seeking declarations, pecuniary penalties and disqualification orders from the Federal Court.
ASIC has also concluded its investigation into suspected insider trading in relation to trading in Nuix shares in 2021 and has decided no further action will be taken.
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Background
The initial public offering (IPO) of Nuix was billed as the biggest IPO of 2020 and, at the offer price of $5.31 per share, Nuix had a market capitalisation of $1.7 billion.
While ACV is not a statutory reporting metric, Nuix’s forecast ACV growth was a feature promoted in its Prospectus. ASIC considers that for a business like Nuix with revenue recognition patterns that may distort statutory revenue, ACV is a significant metric which influences an investor’s assessment of its underlying growth, earning potential and suitability as an investment.
- ACV assesses the total contract value of a company’s revenue at a point in time on an annualised basis. A comparison between ACV at two points in time provides visibility as to a company’s underlying revenue growth trajectory.
ASIC has concluded its investigation into statements made in the IPO prospectus and the financial statements of Nuix for the financial periods ended June 2018 to June 2020 and determined no further action will be taken.
ASIC has also concluded its investigation into Macquarie Capital (Australia) Limited for suspected contravention of s912A of the Corporations Act in relation to the Nuix IPO, determining that no further action will be taken.
Editor's note:
On 10 February 2023, the Federal Court made orders for a liability trial to be set down for 20 November 2023 to 15 December 2023. A case management hearing is listed for 25 August 2023.
Editor's note 2:
The next case management hearing is listed for 17 October 2023.
Editor's note 3:
The next case management hearing is listed for 16 November 2023.
Editor's note 4:
On 15 December 2023, the liability trial concluded. Judgment has been reserved.