ASIC, which started the proceedings in 2001 in the wake of the telco start-up's collapse that year, sought rulings on the duties and obligations of a company's management to disclose their company's financial position to their board and the market, seeking both substantial financial penalties and disqualifications from being directors.
One.Tel's chairman, John Greaves, and joint CEO, Brad Keeling, agreed to settlements in 2003 under which they accepted disqualifications of 10 years and four years respectively as well as liabilities to pay compensation of $20 million (Greaves) and $92 million (Keeling).
Justice Austin, who handed down the judgment in the NSW Supreme Court today, found ASIC had failed to prove its case and that while its contentions had a superficial appeal "time and again they were shown to be unpersuasive when the underlying financial details were investigated." He cited an absence of evidence to support ASIC's reliance on some documents and, where there were documents that were supported by witnesses, preferred the "plausible explanations" of Rich and Silbermann.
No doubt, given the many millions of dollars of prospective costs involved, ASIC will conduct an extensive post mortem on the outcome and the way it prosecuted the action. It may yet of course, appeal the judgment, once it has been able to trawl through the more than 3,000 pages.
However, for those more interested in how One.Tel came to collapse, costing James Packer and Lachlan Murdoch dearly in terms of reputation and their companies the best part of $1 billion the judgment provides little satisfaction.
Justice Austin himself said that the question he had to determine wasn't the larger issue of how it happened that a rising corporate group supported by well-resourced investors (Publishing & Broadcasting, Consolidated Press and News Corp) could fail in spectacular circumstances. He had not been asked to determine who was to blame for the disaster, he said, and many questions about One.Tel's failure had been left unanswered.
Controversially, however, he speculated that had a fundraising of $132 million - the capital raising that Packer and Murdoch had initially agreed to support until withdrawing their support and plunging One.Tel into administration - might, with continuing support from the major shareholders, have been sufficient to meet the group's cash needs until November 2001. By then, according to its business plans, it would have been generating more healthy cashflows.
Rich, who took the opportunity to have a swipe at his former mates, Packer and Murdoch, for their assertion that they had been profoundly mislead over the state of One.Tel's finances, talked about the company that "we spent six years building so successfully" being put into liquidation so easily "by some very strange things that went on".
The reality is that One.Tel was built during the period of the dot.com and telco boom that ended in 2001. Its original re-sale model was to build a customer base by charging its customer less that it was paying to buy capacity. Not surprisingly, it was very successful at that.
Then it built its own fixed-line network and expanded into Europe. Unhappily, its billing systems didn't work, so it piled up debtors, while its competitors responded to the cut-price strategies. While professing publicly that the group was on-track to be cash-positive and that it would have $75 million of cash in the bank by June 2001, internally One.Tel appears to have had little control or understanding of its cashflows or the mounting issues created by its billing system.
The increasingly agitated Packer and Murdoch pulled the equity raising because they didn't believe it would solve One.Tel's issues - they thought it could need as much as $300 million, if not more - and because their trust in Rich and Keeling and One.Tel's numbers had been undermined.
Justice Austin may be right in saying that the $132 million - and the continuing support of PBL and News - may have enabled One.Tel to survive, although one suspects the tech-wreck would have overwhelmed it in any event.
However, the need for the unanticipated emergency equity raising was because One.Tel was so rapidly falling short of the cashflow projections it had been making so confidently to its directors and the market.
There may well be plausible explanations for that, and Rich may have won the case brought by ASIC but that doesn't absolve he or Keeling, or Silbermann, for their central roles in the circumstances and the poor management that led to One.Tel's collapse. Whatever Rich might claim, One.Tel wasn't a successful company, unless success is measured by revenue, not cashflows or execution.
This article first appeared on Business Spectator.