Legal action has been filed against auditor BDO Spicers over its work for Capital + Merchant Finance (CMF), which collapsed in 2007.

Investors in CMF debentures are facing 100 per cent losses totalling $167 million and litigation is the only hope of recovering some of their money.

The lawsuit was filed by the Official Assignee as liquidator of CMF.

BDO Spicers managing partner Craig Lamberton confirmed there was legal action which would be defended.

The Official Assignee declined to comment.

The action comes almost five years after BDO Spicers was criticised by Justice Rhys Harrison in a High Court ruling allowing receivers to be appointed to the finance company.

In resisting receivership, counsel for CMF pointed to an audit opinion from BDO Spicers on November 7, 2007. The opinion certified there had been no material adverse change in circumstances, or event, since it reported favourably on the company's position in March.

The auditor's November opinion came weeks after Ferrier Hodgson had assessed the finance company's position as critical.

Justice Harrison said the auditor had access to the same core information as Ferrier Hodgson "and might have been expected to conduct a similar exercise in the wake of events since 31 March 2007".

"I have had independent cause to scrutinise CMF's financial position over the past day or so. I am in no doubt that there have been a number of material adverse events since 31 March 2007."

Last month three CMF directors, Neal Nicholls, Wayne Douglas and Owen Tallentire were jailed for between five and seven years after being found guilty of fraud charges relating to their conduct at CMF.

Legal action is also being considered by CMF's receivers Grant Graham and Brendon Gibson of KordaMentha against the trustee, Perpetual Trust, which had a legal obligation to supervise Capital + Merchant on investors' behalf.

Perpetual has said it will retire as trustee to defend the legal action. It is likely to be replaced by Public Trust. Public Trust chairman Trevor Janes, a CMF director for 18 months until October 2006, has said he will stand aside from any involvement in the case.

Janes' appointment this month to the board of ACC was criticised in Parliament last week by Labour MP Andrew Little, who asked whether ACC minister Judith Collins would reconsider his appointment.

While at CMF, Janes "took no action in the form of whistle-blowing or other protection of investors' interests and merely resigned after the damage was done", said Little.

- © Fairfax NZ News