A number of US law firms filed class action lawsuits with a view to representing investors who might have suffered losses following the downfall of NMC Health.
Bernstein Liebherd, Bronstein, Gewirtz & Grossman, Gainey, McKenna & Egleston, Pomerantz Law, Schall Law and Wolf Hadenstein Adler Freeman & Herz are six firms that have filed class action suits in courts on behalf of US investors alleging securities fraud.
Other firms are encouraging investors, who have lost $100,000 (Dh367,000) or more on NMC Health American Depository Receipts (ADRs) – a way for US stakeholders to invest in companies listed on the London Stock Exchange – to come forward with a view to representing them.
The filings make a number of allegations, including that the company lacked effective internal controls, that it engaged in “undisclosed and extensive” related party transactions, and that its debts were significantly understated, while cash balances were overstated.
At least one filing alleges that previous statements made by the company “were materially false and misleading and/or lacked a reasonable basis”.
NMC Health was placed into administration last month following a petition from its largest lender, Abu Dhabi Commercial Bank.
Joint administrators Richard Fleming, Mark Firmin and Ben Cairns from Alvarez & Marsal Europe were appointed to run the business, whose group companies continue to operate, but whose shares have been delisted from the London Stock Exchange as a cost-saving measure, and to simplify the restructuring process, administrators said last week.
Administrators declined to comment on the cases filed in the US.
Even if they were to be successful, any claim against the company from shareholders might not be paid given the scale of its debts. Claims from equity holders typically rank below those of secured and unsecured lenders, Kevin Lucas, an insolvency practitioner at UK-based Lucas Johnson, told The National.
“As a shareholder in the UK, you have a right to money after creditors have been paid – you’re not entitled to anything before that, unless part of your investment was a bond investment, rather than equity,” Mr Lucas explained.
NMC Health owes $6.6 billion to lenders but had less than $5bn of assets on its balance sheet as of June 30 last year, according to its last filed accounts. That means banks themselves may not be paid in full.
“If the banks are going to suffer a shortfall, that means the likes of HMRC (the UK tax authority) and utilities companies aren’t going to get paid. If they’re not going to be paid, there’s nothing left for the shareholders,” Mr Lucas said.
However, he said it was unclear whether the law firms that have filed claims were taking action against the company or its directors.
If directors have taken action that is deemed to have prejudiced investors, they may be personally liable, Mr Lucas said.
NMC Health, which employs 2,000 doctors and almost 20,000 other staff, first hit problems in December when short seller Muddy Waters Research issued a report arguing the company had inflated cash balances, overpaid for assets and understated its debt.
The allegations sparked an independent investigation, which highlighted "suspected fraudulent behaviour" and revealed the $6.6bn debt pile, materially higher than the $2.1bn reported in the company's last set of accounts.
Last week, NMC’s founder BR Shetty said “serious fraud and wrongdoing” appears to have taken place at the company, as well as at currency and payments group Finablr and at several of his privately-owned companies.
“This fraud also appears to have been undertaken by a small group of current and former executives at these companies,” Mr Shetty said.
The fraud involved the creation of bank accounts, loans and personal guarantees in his name, he said, which he "neither authorised, consented to, or had any knowledge of".
Finablr, which is also listed on the London Stock Exchange, reported on Friday that its debt is almost $1bn higher than previously reported. It has debts of $1.3bn, as compared with $334.1 million in its last filed accounts for the six months to June 30, 2019.