Former Hanover boss Mark Hotchin has appealed against a decision that found trustees were not responsible for the truth and accuracy of finance company prospectuses.
And in doing so he has said the trustees of the Hanover group, NZ Guardian Trust and Perpetual Trust, are liable to contribute to any compensation he and the other defendants being sued by the Financial Markets Authority might be ordered to pay.
Last year the High Court dismissed Hotchin's bid to have the failed finance company's trustees included in the FMA case suing Hanover's directors and promoters. It is pursuing civil action against the directors and promoters of Hanover and two related companies aimed at recovering some of their investors' lost millions. The Hanover group failed in July 2008, owing 13,000 investors $554m.
The FMA alleges that during 2007 and 2008 the companies issued prospectuses, advertisements and directors' certificates containing untrue statements. These included a failure to provide relevant information showing the companies' liquidity position had deteriorated, false claims that the companies had adopted various prudential management techniques, and a failure to disclose various related-party transactions. The authority is seeking penalties and compensation for people who relied on these statements and invested $35m in the Hanover companies.
Last year Justice Helen Winkelmann said the trustees did not have a duty to monitor the companies' prospectuses. "The trustees' role in connection with the prospectus is a limited one," she said.
Yesterday Hotchin appealed against the ruling in the Court of Appeal. His lawyer, Nathan Gedye, QC, said the trustees should have detected and actioned on some, if not all, of the matters the FMA said were deficient. Winkelmann's judgment from last year said trustees were supposed to rely on the certificate signed by the directors saying that the prospectus was up to date and not false or misleading. To argue the trustees were responsible for checking whether there was anything untrue in the material "requires a strained reading" of the law.
THE HANOVER SAGA
The Hanover group collapsed in July 2008 owing 13,000 investors $554 million.
Its debt was swapped for shares in Allied Farmers in December 2009.
The Serious Fraud Office spent 32 months investigating Hanover but did not lay criminal charges, saying it was not confident of a conviction.
The Financial Markets Authority is suing its directors, seeking compensation for out-of-pocket investors.
Assets owned by Mark Hotchin and his family trusts remain frozen by the FMA.
Hotchin and fellow former Hanover boss Eric Watson are suing former Shareholders Association chairman Bruce Sheppard for defamation.