Legal hope for failed finance firm investors

Directors of failed finance company Capital + Merchant are facing criminal charges and civil action, which could open the door to a class action by investors trying to recover some of the $167 million lost when the company collapsed.

The Securities Commission laid criminal charges and issued civil proceedings against directors Neal Nicholls, Owen Tallentire, Colin Ryan and Robert Sutherland. Criminal charges have also been laid against Wayne Douglas, who resigned as a director in February 2007.

The criminal charges carry a maximum penalty of five years in prison or fines up to $300,000 each.

The civil action being taken against each of the four current directors carries penalties of up to $500,000 each. Penalties and fines are paid to the Crown, not to investors.

Capital + Merchant Finance went into receivership in late 2007 owing approximately $167m to 7000 investors. Receivers say it is unlikely any money will be recovered.

The civil proceedings had been taken in order to get a "declaration of contravention", according to Securities Commission general counsel Liam Mason. "That is something that investors can rely on to sue [directors] for compensation." It would open the door to a class action for those who invested under the company's 2007 prospectus.

"It does a lot of the work for them," Mr Mason said, though it would not determine damages.

The commission said it would consider pursuing "compensation claims in due course" if that was in the public interest.

Capital + Merchant investor Adrian Howard said yesterday that he was pleased charges had been laid.

"In early November 2007 I received a letter from Tallentire explaining that they had renewed their insurance arrangements, and that all was OK, and that C+M had taken steps to avoid the problems that had occurred with other finance companies." Within three weeks, the firm went into receivership and "recovery of investments was at best delayed, and at worst unlikely".

Another investor, Alan Nicholson, said he was "delighted" to see the directors being prosecuted. They should sell up their assets entirely and repay investors: "Reparation is what we want."

Coincidentally, the Serious Fraud Office said earlier this week that it was investigating possible fraud over related-party transactions at Capital + Merchant.

The Securities Commission alleges that the directors made untrue statements in the registered prospectus and investment statement in August 2006, mainly in respect of related-party lending and loan management.

It also alleges that the four current directors made similar untrue statements in the registered prospectus and investment statement dated September 10; and that five advertisements distributed during 2007 contained untrue statements about insurance cover for capital-secured debenture stock. Those claims do not apply to Mr Douglas, who had resigned his directorship by then.

MERCHANT OF DOOM

Capital + Merchant Finance was the 13th finance company to fail in 18 months.

Receivers appointed in November 2007.

7000 debenture holders owed $167 million.

Initially, investors were told to expect 14 per cent to 59 per cent of their money.

By late 2008, no payout was expected for debenture holders.

Directors facing charges: Neal Nicholls, Auckland Owen Tallentire, formerly of Auckland, now in Australia Colin Ryan, Australia Robert Sutherland, Australia Wayne Douglas, New Zealand, resigned as director in 2007.

- © Fairfax NZ News