Class action threat more pain for Newcrest shreholders As Newcrest Mining prepares to close its financial accounts in the next few days, taking into account the impact of a fall in the gold price on its cash flow and revenue assumptions, it will also need to consider a looming class action that could be worth hundreds of millions of dollars. In a letter sent on December 23, Slater & Gordon invited the controversial goldminer to enter confidential discussions or face a lawsuit in the Federal Court in relation to alleged deceptive and misleading conduct. It is the sort of headache chairman-elect Peter Hay and the rest of the board don't want or need as it puts the spotlight directly on the company's corporate governance standards, its continuous disclosure obligations and the trouble that has gone on since the board agreed to pay way over the odds - $9.5 billion - for the Lihir gold mine in 2010. The allegations followed Newcrest's shocking news on June 7 that it would downgrade its 2014 gold production, write off up to $6 billion on the value of its assets and rub out its final dividend for 2013. The disclosure caused a commotion, including an investigation by corporate regulator ASIC, as several analysts had downgraded their earnings days earlier after being given a selective and private briefing. When the broader market was eventually told, Newcrest's share price dived almost 20 per cent, prompting a witch-hunt that a select few had been put in a privileged position. If a settlement can't be reached between Slater & Gordon and Newcrest, a class action will be filed and with it the opening of wounds among the many shareholders who have lost faith in the company after having watched it lose billions of dollars in market value. To put it into context, three years ago Newcrest's shares hit a high of $43, before slumping to $23 a year ago, and are now trading about $7.52. Newcrest is a company knee-deep in credibility issues. While its chairman Don Mercer will step down at the end of the month and its chief executive has flagged he will leave next year, it will take a lot of work to restore shareholder confidence. Its problems aren't being helped by the gold price, which has fallen to $US1202 an ounce following the US tapering talk. If gold prices continue to fall, Newcrest's guided assumptions may need to be revisited, which will raise speculation of an equity issue, asset sales and deeper cuts to its exploration and corporate overheads. Newcrest isn't the only company facing a shareholder class action, or the threat of one. Others include Leighton Holdings, Treasury Wine Estates and WorleyParsons. It is believed Insurance giant QBE is also being assessed as a possible candidate. Shareholder class actions have long been a topic of heated debate. The companies most susceptible to them are those that suffer a downgrade without a proper announcement. While companies should be punished for inadequate disclosure, the question remains whether it should be left to the regulators to do the punishing or a handful of shareholders, with the risk that it may leave the other shareholders the poorer. Some believe class actions give one set of shareholders preference over another set, which effectively means shareholders are suing themselves. However, others argue that class actions give shareholders a chance to claw back some of the money lost due to egregious behaviour by a company. This school of thought would argue that the class action fills a regulatory void when the corporate regulator decides not to proceed with an investigation due to lack of resources, or lack of will. It is a debate that has come to the fore in the latest Productivity Commission inquiry into access to justice, which has attracted a number of submissions from various players who discuss the role of class actions, litigation funders and their impact on the economy and companies. Attention was also drawn to this space when Attorney-General George Brandis said he was reviewing litigation funding and whether law firms should be allowed to own litigation funders. It's a message that has clipped Maurice Blackburn's wings, as Andrew Watson, the group's class action boss, said the law firm had decided to withdraw an application with the Federal Court to allow Claims Funding Australia - a discretionary trust that had been set up and whose beneficiaries are principals of Maurice Blackburn - to part-fund a class action. For all the criticism from companies, including the histrionics from Treasury Wine Estates boss Warwick Every-Burns that they are "manufactured by self-interested litigators" and are "usurping the role of regulatory authorities," the easiest way to stop them is to run a company well.