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Case for Forge class action strengthens
The West Australian

The chances of Forge Group facing class actions from shareholders have strengthened after the engineering firm admitted management became aware of project problems a month before they were revealed.

Forge's share price has fallen more than 80 per cent since it resumed trading last week with news of a $127 million profit writedown and bank bailout.

The company first disclosed there were potential losses on two power station projects when it went into a trading halt on November 4.

Forge yesterday told the Australian Securities Exchange that project review meetings in late September had identified a risk of "significant margin erosions" on the Diamantina and West Angelas power stations because of cost over-runs and delays

It said management took about a month to re-forecast the cost and complete complex project negotiations. The board was briefed on possible writedowns in late October.

The contractor argued to the ASX that it was not clear the projects would suffer losses until mediation with client Diaman- tina Power Station and a subcontractor was completed.

"Throughout this process, management remained of the view there was a reasonable likelihood that a material writedown of the projects would not be necessary," company secretary Glen Smith said in a letter to the ASX.

Mr Smith said after mediation ended late on Friday, November 1, the leadership concluded the DPS project in Queensland would lose money but could not yet determine the size of the blowout. The board decided over that weekend to put the stock in a trading halt.

The shares closed at $4.18 on November 1. They finished yesterday at 64.5¢, up 14 per cent for the day.

The Forge letter came in response to an ASX query last Friday on whether the contractor had met continuous disclosure obligations.

Australian Shareholders Association spokesman Stephen Mayne described Forge's case as a classic class action situation.

"Shareholders who bought shares in the period leading up to the profit warning would have a pretty strong case for saying that the board hadn't fully informed the market at the time they bought shares," Mr Mayne said.

"There'll be a bit of a race on between the competing litigation funders and law firms to lodge in the case of Forge because it's a wipe-out on a scale with few precedents."

On potential shareholder action, Forge chairman David Craig last week said: "I'm very comfortable that the board has done the right thing."