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BusinessDesk: Crown prosecutor tells court Lombard Finance directors’ duties weren't 'delegable'
The directors of failed property lender Lombard Finance & Investments should have picked up on and relayed the lender’s precarious position to investors in the lead-up to its collapse, the Crown prosecutor says.
A company director’s role “is not a delegable duty” and they needed to “determine for themselves what reflected the position of the company,” Colin Carruthers told the High Court in Wellington today.
The Crown, which is concluding its case today, contends Lombard Finance directors Doug Graham, Bill Jefferies, Lawrence Bryant and Michael Reeves made untrue statements in a 2007 prospectus, investment statement and advertising material.
“The issue for the Crown is the requirement to make disclosure,” Carruthers said. “It’s not about the ways in which business was conducted.”
The three main areas the directors failed in their duty were in communicating to investors the dwindling cash position of the company, an increasing squeeze on liquidity, and difficulties in enforcing loan repayments in line with forecasts, Carruthers said.
The directors should have been aware of the deterioration in the property market and how this was impacting on Lombard Finance’s ability to recover loans at full value. Because of that, investors should have been told how parlous the company’s state was, he said.
“It’s clear from the company’s own records it no longer had faith in its long-term business model” and that it was looking for ways to recapitalise, Carruthers said.
In response to a question from Judge Robert Dobson, Carruthers said there wasn’t any specific milestone the company missed in its analysis of impaired loans that should have been reflected in the offer documents, rather it was the continued deterioration of its position.
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“The quantification isn’t actually an issue – the issue is the disclosure of the sort of effect to the prospect of recovery of these loans by Lombard Finance,” he said.
“Getting the whole loan back was not a reasonable prospect,” he said referring to its advance on the Brooklyn Rise property development in Wellington, its biggest exposure at some $40.6 million.
Lombard went into receivership on April 10, 2008, owing approximately $111 million to about 3,900 debenture holders, $10 million to 310 capital note holders, and $4 million to subordinated note holders. It is unlikely that secured debenture holders will receive more than 24 percent of their investment back. Unsecured creditors are likely to receive nothing.
Counsel for the defence will make their closing arguments over the next three days.
The trial is continuing.
12 Comments
A company director’s role “is
A company director’s role “is not a delegable duty” and they needed to “determine for themselves what reflected the position of the company,” Colin Carruthers told the High Court in Wellington today.
Well done !
Therefore - thousand’s of criminal banksters and politicians worldwide should be in jail.
"The directors of failed
"The directors of failed property lender Lombard Finance & Investments should have picked up on and relayed the lender’s precarious position to investors in the lead-up to its collapse, the Crown prosecutor says."
And here I was thinking real courts aren't supposed to be like Ally McBeal (ie TV)
The finance company hand not failed any milestones.
And the prosecution is saying that the directors should be out in public deliberately undermining investor confidence? And that even presumes that the management have given enough un-obstuficated detail for the directors to make that choice on their own!!!
The legal system needs a reality check.
YES we do need to protect the investors.... to make sure ACCURATE information is being given out, and not the usual spin that seems to accompany big salaries wind bags
The choice must be with the investors. It's their money and their duty of care. The directors are there to check procedures and policy are legal..... but in NZ its customary for upper management to restrict that information. If anyone here has worked in a sensitive company, and claims never to have been told not to speak to the directors/board, and never to mention in passing certain projects in case board members get the wrong idea, then I would suspect that person of lying to me.
The law fails investors and directors, using the directors as scapegoats isn't good enough. We need to find the employees responsible and make sure that they accurately portrayed the companies position - because its their duty to give correct information to directors - directors are unable to know if they're being misled!! The directors are normally not permitted access to company records, and many are not accountants.... and it's about time that proper accounting "true and correct" be applied, and that the legal side start having the the correct skillset to interpret that system.... it is said that a person doing their own legal defence has a fool for a client.... well same goes for one who would speak on financal matters without a clue on how they're calculately correctly.
"The directors are normally
"The directors are normally not permitted access to company records"
That's BS. Directors are required to sign off on the accounts. Any director that is not permitted to access company records should resign immediately. Unless they are only there for show, which means they are stupid and deserve what they get. Those fees they get paid, do carry a bit of responsibilty.
So moa man are you are liar
So moa man are you are liar or a cheat???
Yes they _sign_ off on the __accounts__. If they ask for records say...to the entire history of the companies bank payments through that year (let alone previous years) they will normally be told that's Operational detail and not in their purview, and if they actually get stroppy enough to push it, they get told it's on file, in several places and none of the details are at hand, and the group of people needed to sort the data out of the system aren't available, and it all goes through a registered account (see the accountants firm). In more than one case we had been told not to mention or refer to future projects so that questions weren't asked - when a director asked about it, they were told it was commercially sensitive and only an "outline", and if it reached a pointed in which it was likely to be proceed then the details would be "properly assembled" before they were asking for a sign off.....result, I missed my next pay rise and got on the bad side of my bosses' boss; and the director just completely swallowed what the highly professional CEO and his management team told him - the director even asked the accountant who said he hadn't heard about the project. It was 6 years before it hit the front pages of the papers.
And yes, many people who sign as directors don't realise what they're doing, or their job, or their risk; nor do they have relevant skills.
But that doesn't mean that the executive and management teams should get a free walk.....they are after all the ones who actually made the mess. And for a crown prosecutor to ignore that and just go for the easy target (the directors), and say that the directors SHOULD undermine their management people, direct to the investors!!!!!!!!!!!!!!!!!!!!!! That's rubbish. It could just be usual crappy journalism getting it wrong, but if a director did that, and it cost the company (& shareholders), it would be libel!!! Because that's not what a director is allowed to do. They can put the word on the management, or they can put pressure through companies and commerce department (who will normally ask for proof on silver platter - see my point about the details.) or they can resign. They may not run the image of the company down in front of anyone, especially their own prospective investors - especially without _proof_ of failure and real benchmarks being violated!!!!!!!!!!
Maybe you should contact the
Maybe you should contact the defence with your line of reasoning. They probably are not competent enough to argue this for their side, or to realise what the prosecution is accusing their clients of.
Or are you simply advocating a legal system where the prosecution is carefully censored in the interests of directors.
I advocate a legal system in
I advocate a legal system in which the crown sticks to facts and legal truth. A director may NOT undermine the confidence of the company's management on their personal whim! And certainly not to prospective investors! If it made the company look unfavourable it would be libel - and from a person sith inside information and position of responsibility to the shareholders!!!! THAT is illegal and unethical.
I'm saying if it's a case about accounts and investments, the lawyers and more importantly the judge, needs to have the skill set to understand what they're examining.
If it's about directors, then the reports presented to those directors need to be checked to see if there was any information that the directors should have have picked up. Also the problem needs proper forensic care, to see why this information -wasn't- available to directors and prospective investors. If it was available, then they can be prosecuted on the strength of that - but to prosecute them on not knowing about information that was hidden from them?? NO. In that case they (The prosecution) need to find the people responsible for the misdirection and prosecute them.
In 3 recent cases involved with legal matters, the judge & adjudicators have been so inaccurate with their "fact finding" you'd think they must have been high through the hearings. And I'm not talking "personal position" stuff; I'm talking things like accusing one party of delaying, when it was the other who kept changing lawyers and refusing to go to disputes instead of full court (And then filing retrial because they didnt get their way). Adding up expenses as income in another case (case of not knowing Drs from Crs), and adding 100% rental occupancy on top of income that already included rental income (and when occupancy was only 50%). Not realising that when the leasing agent said "he didnt know the place needed repairs" and 1 minute later saying they "had arranged for the guttering to be fixed before occupancy" might show that someone is lying - an important duty of care for a "fact finder" especially when the other party pointed out the comment, and indicated the tools were in sight and still stored in a locked shed.
But we get to the high court, and the _crown_prosecutor_ is promoting libel, by a person with inside knowledge and a duty of care to protect the shareholders????
It will be interesting to see
It will be interesting to see which way this one goes. In the Feltex case directors' duties were seemingly delegable, especially to their auditor - http://www.interest.co.nz/news/55661/high-court-more-halves-huge-costs-a...
Well Mr GV, what do you think
Well Mr GV, what do you think the auditors job was?
And did they do it? and did that affect what information was available to the directors (who rely on the audit to indicate that due care was taken - which is the directors job to see that due care (ie auditors were used) was used.
Here's my take on what
Here's my take on what happened at Feltex - http://www.interest.co.nz/opinion/53458/opinion-why-feltex-debacle-must-...
I had a large sum of money
I had a large sum of money invested with Lombard and decided to withdraw from them in '07.This they would not do, and directed me to there letters indicating that all was well.In Nov '07 a debenture came due and i quickly redeemed the funds, only to be questioned as to why i wanted to redeem the money.I was informed that there was a problem with the banks at the time,this was fully three months before the company went into receivership.They certainly knew they were in trouble and didn't let the investors know beforehand as to the problems with the company.
Hey Doug and co. I hope you
Hey Doug and co. I hope you boys end up being somebodies bitch.
God what a horrible thought.
It should be worthwhile to
It should be worthwhile to see how the case goes. I think by withholding information about their company's finances, what they did could be amounting to corporate fraud. If they had used false information to trick investors, then they definitely have committed a crime.