Reeves never thought of disclosing Lombard's cash position, court hears

Wednesday 7th December 2011

Lombard Finance & Investments chief executive Michael Reeves never thought to include the lender’s cash position in the amended prospectus when it was put out to investors in December 2007.

In the High Court in Wellington today, Reeves rejected claims the prospectus, investment statement and promotional DVD included untrue statements, but didn’t think to include the firm’s cash position when amending the offer document to alert investors as to the risks of a deteriorating market.

“I never thought of it to be honest. I haven’t ever seen it done before in any investment statement or prospectus,” he said in response to questioning from prosecution counsel Colin Carruthers, Q.C.

Lombard’s business plan included a policy aim of keeping cash reserves at about 10 percent of assets, though it wasn’t part of any offer document, trust deed of covenant, he said. In the lead-up to a December 2007 board meeting, he confirmed the cash position was down to about 5 percent of total assets.

The December 2007 prospectus wasn’t issued to raise new money, rather its aim was to inform investors of the negative deterioration and growing risks in the financial services sector, he said.

Earlier in the proceedings, Reeves said he was annoyed by solicitors Phillips Fox when it didn’t include the tougher market conditions in its amendments to the 2007 prospectus, and he engaged Minter Ellison to draft up similar changes to ensure his concerns would be adequately addressed.

He said he was happy with the independent advice Lombard received from Ferrier Hodgson, now KordaMentha, and its milestone targets made up part of the firm’s weekly reports to trustee Perpetual Trust, auditor KPMG and also went to the Ministry of Economic Development and the Securities Commission.

Reeves said Perpetual Trust would not consider a proposal to put Lombard in moratorium, as a result of which Lombard had to call in receivers, quashing the prospects for some of its borrowers to complete property developments in the pipeline.

Last year, the then-Securities Commission laid civil and criminal proceedings against the directors. Lombard went into receivership on April 10, 2008, owing approximately $127 million to about 4,400 investors, and it is unlikely that secured debenture holders will receive more than 24 percent of their investment back. Unsecured creditors are likely to receive nothing. The case is continuing.

BusinessDesk.co.nz

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