Hotchin fails in bid to rope Hanover trustees into lawsuit
THERE is nothing in the law that says trustees are responsible for the truth and accuracy of finance company prospectuses, the High Court has ruled.
Former Hanover boss Mark Hotchin yesterday lost his bid to have the failed finance company’s trustees included in a Financial Markets Authority (FMA) case suing Hanover’s directors and promoters. The authority is pursuing civil action against the directors and promoters of Hanover and two related companies aimed at recovering some of their investors’ lost millions.
It alleges that during 2007 and 2008 the companies issued prospectuses, advertisements and directors’ certificates containing untrue statements.
These included a failure to provide relevant information showing the companies’ liquidity position had deteriorated, false claims that the companies had adopted various prudential management tech- niques, and a failure to disclose various related-party transactions.
The authority is seeking penalties and compensation for people who relied on these statements and invested $35 million in the Hanover companies.
Hotchin argued that as trustees of the companies, New Zealand Guardian Trust (NZGT) and Perpetual Trust were liable to contribute to any compensation he and the other defendants might be ordered to pay. But in a written judgment issued yesterday, Justice Helen Winkelmann said the trustees did not have a duty to monitor the companies’ prospectuses.
‘‘The trustees’ role in connection with the prospectus is a limited one,’’ she said.
Trustees were supposed to rely on the certificate signed by the directors saying that the prospectus was up to date and not false or misleading. To argue that the trustees were responsible for checking whether there was anything untrue in the material ‘‘requires a strained reading’’ of the law.
The judge also ruled that the finance companies’ directors and trustees did not share the same liability. If the FMA’s claim succeeded, the directors would be liable for damages flowing from investments made relying on untrue statements, while the trustees would be liable for losses incurred while they failed to act. ‘‘This is not the same damage.’’ The judge struck out Hotchin’s third-party claims against NZGT and Perpetual, and ordered him to pay their costs.