Monday 1st July 2013
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The trustees for the now-defunct Hanover group of companies have avoided being drawn into the Financial Markets Authority's civil case against the former lender's directors and promoters.
In the High Court in Auckland, Justice Helen Winkelmann agreed with New Zealand Guardian Trust Co and Perpetual Trust to strike out a claim by former Hanover principal Mark Hotchin that would have drawn the trustees into the FMA's civil case, according to a June 28 judgment published today.
Hotchin sought to add the firms to the proceedings, claiming if he and his fellow directors and promoters were liable to pay compensation, then so were the trustees.
Justice Winkelmann struck out the claim because the potential liability facing the Hanover directors was different to whether the trustees breached their duties, saying "a right to approve is not lightly to be converted to an obligation to ensure the trust of all statements contained in the prospectuses."
Imposing that level of duty on a trustee would be quite different to what they currently do and would create more costs for no apparent benefit, the judgment said.
"It cannot be argued that the trustees owed a duty to monitor the prospectuses," the judgment said.
"The trust deeds, Securities Act and Regulations and the prospectuses do not suggest that the trustees have any responsibility for the overall contents of the prospectuses, and the imposition of such a duty would run contrary to the legislative division of responsibilities between issuers, trustees and auditors," it said.
The FMA is pursuing the former Hanover directors and promoters in a civil suit over the period between December 2007 and July 2008 when $35 million was deposited with the failed lender. In April, the Serious Fraud Office closed its investigation into the lender after deciding not to press ahead with a prosecution, though it will provide information and evidence to assist the FMA's claim.
Separately, Hanover shareholders Hotchin and Eric Watson are pursuing defamation proceedings against former New Zealand Shareholders' Association chairman Bruce Sheppard. That case is expected to be heard in October, when Sheppard will call 25 witnesses to defend his statements.
Hanover Finance froze $554 million of funds for its 17,000 investors in July 2008 after running into financial difficulties, before convincing them to accept a disastrous deal where their debt was swapped for equity in Allied Farmers the following year.
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