No sign of Hotchin lawsuit 19 months after court ruling, Guardian Trust says

Tuesday 31st October 2017

Former Hanover Finance principal Mark Hotchin hasn't filed a new claim against former trustee New Zealand Guardian Trust in the 19 months since the Supreme Court ruled he could pursue the firm for a contribution to an $18 million payment to investors.

In a split decision in March 2016, the Supreme Court overturned Guardian Trust's bid to avoid being drawn into the Financial Markets Authority's suit against the former Hanover directors and promoters that ultimately saw them cut a deal, and included an unspecified amount from their insurer and broker. The deal was settled just before it was to go to court with the directors denying any admission of liability and excluded Hanover shareholder Eric Watson.

At the time, Hotchin's lawyer Nathan Gedye QC said his client intended to pursue the claim but today Guardian Trust's parent Complectus told BusinessDesk no new claim had emerged and no settlement had been reached.

"There are no current claims against the Complectus group in connection with Mark Hotchin or Hanover Finance," a spokeswoman said in an emailed statement. "We do not believe that any further claims are likely."

Hotchin's successful argument was that Guardian Trust failed in its duty overseeing Hanover and should have acted sooner to limit investor losses, where some $300 million of debentures were swapped for shares of Allied Farmers but became virtually worthless when the benefits of a merged loan book didn't materialise. At the time of the judgment, Justice Susan Glazebrook, who upheld the appeal, said it was hard to reconcile Hotchin's pursuit of the claim requiring him to accept liability with statements in the settlement that he wasn't liable.

"The suspicion must be that this may be a cynical attempt to force a settlement with Guardian Trust," Justice Glazebrook said. "If this is the case, the courts should not be a party to what would be a misuse of the court processes."

The FMA cut the deal with Hanover three years after first filing a civil suit for $35 million, seen as having a better chance of success than criminal charges, saying it was a better outcome than waiting for the court case and possible appeals to be concluded. The regulator froze Hotchin's assets for almost five years.

Complectus operates the Perpetual Guardian supervisory business, which was the brainchild of Andrew Barnes who bought Perpetual Trust from Pyne Gould Corp in 2013. That acquisition included the liability attached the firm's supervision of failed lender Capital + Merchant Finance. The failed lender's receivers sued Perpetual Trust and law firm Stace Hammond for $94 million, however, a deal was cut on the eve of that court hearing.

Perpetual's latest accounts show the $5 million settlement was fully covered by the firm's insurer.

After Perpetual, Complectus bought Guardian Trust, Covenant Trustee Services, Foundation Corporate Trust and New Zealand Trustee Services and now oversees more than $130 billion of assets.

The trustee firm planned a $150 million initial public offering last year, but pulled the pin citing turbulent financial markets. However, during that process it prepared "comprehensive financial forecasts" for the 2017 and 2018 years, and the latest accounts show "profitability for the year to June 2017 comfortably exceeded this forecast," the spokeswoman said.

Perpetual, Guardian Trust, and Covenant Trustee Services each file separate financial statements. The Guardian Trust accounts show the unit boosted profit to $9.9 million in the 12 months ended June 30 from $8.8 million a year earlier, total fee revenue climbing 2.5 percent to $44.6 million. The unit's loan repayment to Complectus rose to $6.7 million from $6.3 million a year earlier and reduced the outstanding balance to $9.6 million from $15.2 million a year earlier.

Perpetual's loss widened to $551,000 from $331,000 in the year, as fee and commission income slipped 5.8 percent to $4.6 million. The unit pays 90 percent of gross revenue to Guardian Trust as services fees, which edged down to $5.1 million in the year from $5.3 million in 2016.

Covenant Trustee Services increased net profit to $2.6 million from $841,00 a year earlier on a 58 percent jump in revenue to $5.8 million, largely from a gain in fees.

After last year's aborted IPO, Complectus shareholder Bath Street Capital planned to sell the financial services group to Australia's Sargon Capital, however, that also fell through. On Aug. 31, the ultimate holding company entered into a convertible loan facility with private equity firm Direct Capital, which can convert into 50 percent of Complectus's ordinary shares at the discretion of the lender.

(BusinessDesk)

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