Myer Holdings (ASX:MYR) surprised the market last week when its full year profit forecast was downgraded without warning. Questions have been raised about why the profit downgrade wasn’t mentioned two weeks ago when the company announced a new chief executive. Myer announced on Thursday that legal proceeding were served against the company on Wednesday. The suit was filed by Portfolio Law Ptd Ltd on behalf of Melbourne City Investments Ptd Ltd (MCI). The document claims shareholders have suffered a loss and damages as a result of the surprise profit downgrade. Myer told the Australian Securities Exchange that they only realised there would be a downgrade one day before it released its first-half profit report. "Myer denies the claim and will defend the litigation vigorously," the company said in a statement on Thursday.
Former Minter Ellison partner Mark Elliott, who is well known in legal circles, created MCI. His company is alleging that Myer did not give shareholders enough time to react to the profit downgrade. It also alleged that the company mislead investors about anticipated sales growth. Back in July, the Supreme Court of Victoria criticised Mr Elliott’s intensions. The court claimed that Mr. Elliott created MCI with the intent to generate legal fees for himself through class action lawsuits. Richard Umbers, Myer’s new CEO, warned investors last week that the company expected net profit to fall between $75 and $80m, down from the market forecast of $90m. Myer chairman Paul McClintock has said repeatedly that the company had nothing to disclose to the market. Shares of MYR are down 8c, or 5.65 per cent, at $1.34 around noon on Thursday. Shares of Myer are at all-time low after falling more than 40 per cent in the last 12 months.