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SHAREHOLDERS who subscribed $8 million in June last year to Reynolds Wines' renounceable rights issue were entitled to conclude from a perusal of the prospectus that the company's dispute with the Australian Tax Office was behind it. Moreover, it's suggested that the handful of professional investors who in the same month put up a further $12.5 million for cumulative converting preference shares in Reynolds were of the same belief. Unlike the investors who took up the rights issue, they had been able to conduct due diligence before subscribing and were led to believe that the tax issues were resolved. But that's not the case. Reynolds directors yesterday placed the company into voluntary administration after the company was last Thursday hit with tax assessments "totalling in excess of $10 million". If the talk is right, it is more than double that ¨C about $21 million. Not surprisingly, some investors who participated in the rights issue are very unhappy and are looking into whether they may be able to initiate a shareholder class action.The administrators, Greg Hall and Phil Carter of PricewaterhouseCoopers, indicated yesterday that more than one party is interested in restructuring Reynolds, so it may that the company will be able to come through this crisis. But if it's on the basis that existing shareholders take a haircut, then a class action may yet be launched. If so, there's a number of parties who could potentially be at risk, including the directors, the auditor Deloitte Touche Tohmatsu and perhaps the underwriter of the rights issue, ABN Amro Morgans.
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