CBL MD admits misleading shareholders

Peter Harris, the managing director of failed insurance company CBL, has signed a document admitting the company misled shareholders and failed to keep them informed about its weak financial state.

The case is one of two being taken by the Financial Markets Authority Te Mana Tātai Hokohoko (FMA), while a third case taken by the Serious Fraud Office ended in September with a not guilty verdict for Harris.

CBL had a market value of $747 million on the NZX sharemarket, and boasted many KiwiSaver funds among its investors, when it hit trouble in 2018 from which it would not recover.

Shareholders lost every dollar of their money, making it one of the largest collapses in New Zealand corporate history.

The FMA launched two court actions in 2019 following CBL’s collapse.

In December, the first partially ended with four former directors ordered to pay penalties for continuous disclosure and misleading conduct breaches under the Financial Markets Conduct Act.

Harris was not included in that judgment, but the FMA said Harris had now admitted those continuous disclosure and fair dealing contraventions, and signed an “enforceable undertaking” not to hold management or director positions on any regulated offer to investors in New Zealand.

A penalty hearing would now be set at the High Court in Auckland, the FMA said, to determine how much Harris should pay as a result of the breaches.

The case related to CBL’s failures in 2017 and in 2018 when it was fighting for survival.

CBL Insurance was not a household name in New Zealand, but did do some local insurance business, providing guarantees to Kiwi buyers of new homes that they had been built without any defects.

It was rising claims costs in CBL Insurance's similar, but much larger, building guarantee business in France that tipped CBL Insurance into trouble.

After investigating, the FMA alleged CBL failed to tell shareholders about the need to strengthen its reserves, problems in its French insurance business, and action taken against it by the Central Bank of Ireland.

“The FMA and Mr Harris have entered an in-court settlement to resolve the Continuous Disclosure Proceeding on terms acceptable to both parties,” said FMA head of enforcement Margot Gatland.

The settlement will stay in place until the FMA’s second legal action, alleging failures in disclosure by CBL and its directors during CBL’s initial public offering on the NZX in 2015.

A trial for these proceedings is set down for June to hear the case.

In September last year, Harris was found not guilty at the High Court in Auckland of charges brought by the Serious Fraud Office.

Gatland said the defendants had settled separate civil proceedings brought by shareholders and liquidators for a sum of $72.5m, which included a personal contribution by Harris.

The settlement was entered into without any admission of liability by the defendants, she said.