Cash Converters has been the subject of a class action claim since 2013. The claim has now been settled
Cash Converters (CCV) has been the subject of a class action claim launched by Maurice Blackburn Lawyers on 10 October 2013. The claim has been that a deferred establishment fee charged on loans made by the Cash Converters chain in New South Wales between 1 July 2010 and 30 June 2013 was not lawful.
Settlement has been reached bringing the matter to a close without any admission of liability by CCV. CCV has agreed to pay $20m into a fund which will be used to make distributions to members of the action. Any unused proceeds will be returned to CCV. Legal fees capped at $3m will also be paid by CCV.
This rounds off an expensive financial year for CCV in terms of ‘one off’ costs which have also included $30.8m to purchase licences and development rights (however these will drive around $6m p.a. in savings going forward).
The underlying business however remains strong with the company likely to post about $62m in underlying EBITDA for the full FY15 (however will likely post a NPAT statutory loss). While not positive, these costs are manageable for the company. Further to the strong underlying cash generation, CCV held about $43m of cash on the balance sheet at 1H15. The company states that it will pay the costs from its existing resources. The costs will be tax deductable.
Importantly, the lending system against which the class action was brought was only used in NSW. This means that the company will not face litigation on this issue in other states and therefore brings this matter to a close and removes a significant item of uncertainty.
The full ASX release is available here, and our most recent comment on CCV’s 3Q15 results can be found below.