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BusinessDesk: Crown prosecutor tells court Lombard Finance directors’ duties weren't 'delegable'

Posted in Property
Doug Graham.

 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.

“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.

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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 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.

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.
 
 

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...

Here's my take on what

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.

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.