High Court authorised a class action against directors and promoters of Intueri Education’s $175 million public float with allegations information about student numbers and revenue streams were misleading, breaching Securities Act and Fair Trading Act. Parallel attempts to get a quick win with summary judgment on questions of liability foundered when the High Court ruled a full court hearing is needed to canvas all facts.
Intueri Education Group Ltd operated as a private training establishment with emphasis on business, travel and culinary courses. It went public in 2014. The IPO raised $174.7 million, offering shares at $2.35. By February 2016, Intueri was advising of ‘enrolment restrictions’ affecting future revenue. Eighteen months later it was in liquidation. Teaching stopped. The oblique reference to ‘enrolment restrictions’ turned out to be government restrictions on how Intueri reported its pass rates and indirectly how it treated fees retained by students who had withdrawn. A substantial part of Intueri’s cash flow had been student fees from students who did not complete courses. Much of this revenue came from government-funded StudyLink student loans. At time of the IPO, some $14 million Intueri annual revenue was generated from 2600 students no longer attending, according to a subsequent investigation. This revenue went ‘straight to the bottom line:’ Intueri was receiving revenue for tuition, but not having to provide teaching.
Aggrieved investors sued, alleging they had been misled. Intueri misrepresented the size of business operations, its student success rate and the source of revenue, they claim. In particular, investors criticise IPO representations of 4628 student enrolments for the 2013 year and a course completion rate of 91 per cent for the previous academic year. Completion rates were compiled on a different basis to enrolments. Enrolments were gross enrolments (all who enrolled regardless of whether they dropped out or not); completion rates were calculated on net enrolments (gross enrolments less those who dropped out and did not complete). Investors complain this misleading presentation disguised the fact that a large proportion of annual revenue was derived from fees paid by students who later withdrew and that this business model was at risk if government rules changed.
The High Court was told the content of Intueri’s IPO documents raised concerns within the Tertiary Education Commission; there was a mis-match between student enrolments claimed in IPO documents and government records of numbers enrolled. A Deloitte investigation followed. It found that a lacuna in reporting rules enabled private training establishments like Intueri to exploit the timing difference between the deadline within which withdrawing students could claim a refund of their fees and the cut-off point for the start of direct government funding. It could keep student fees without alerting education authorities that the student had dropped out. The investigation also found Intueri had a policy of ‘selling’ course places twice over; new students would be found to fill places where an enrolled student had withdrawn outside the time limit to get a refund, allowing Intueri to retain two lots of student fees for one student place while still generating ongoing direct government funding for the continuing student.
Investors argued the facts were clear from documentary evidence; the court could rule on directors’ and promoters’ liability and leave questions of compensation to be dealt with later, they said. Justice Fitzgerald disagreed. The Deloitte report was inadmissible hearsay evidence, she said. Deloitte did not give evidence; the Deloitte report as presented in court by investors was a statement made by someone else.
A full court hearing is needed to establish circumstances of the IPO and the extent to which investors relied on IPO documents. The class action encompasses all those who purchased in the April 2014 Intueri IPO and suffered a loss.
Fullarton v. Arowana International Ltd – High Court (29.04.21)
21.047