By Gareth Vaughan
A long running legal stoush over the 2004 demise of share broking firm Access Brokerage, involving BNZ on one side and sharemarket operator NZX on the other, has been settled out of court.
In their final report Access Brokerage’s liquidators, Michael Stiassny and Brendon Gibson of KordaMentha, say a settlement has been reached in the litigation with NZX and Deloitte, with the terms confidential. Stiassny and Gibson also note that all known assets of the company have now been realized with a first and final distribution of about 18 cents in the dollar, or NZ$963,131.59 in total, paid to all unsecured creditors.
Following a voluntary disclosure by one of Access Brokerage’s directors, Bill Garlick, to NZX, the stock exchange operator declared the company a defaulter under NZX Participant Rules and suspended it as an NZX firm on September 6, 2004. Stiassny and Gibson were appointed liquidators the same day by the High Court in Wellington.
In their first report the liquidators noted the “utilisation of client monies to fund the business” had been ongoing for some time.
They estimated a shortfall on client obligations of NZ$4.8 million and deficit prior to liquidation costs of NZ$3.7 million. There was just NZ$112,000 in the company’s bank account at the date of liquidation. About 10,000 investors were left with NZ$43 million frozen in the brokerage's trust account. BNZ, as Access’ banker, settled the company’s debts to clients and took assignment of the clients’ rights of action.
BNZ and Access issued proceedings against NZX and Deloitte, which had carried out inspections of Access on behalf of NZX, in September 2005 claiming NZX had breached duties of care in tort to protect both Access’ clients and Access against their losses resulting from the firm's liquidation. The claim was initially struck out in the High Court with the judge finding no arguable case against NZX because it was a regulator and not subject to private duties of care.
BNZ appealed, arguing NZX was a commercial entity listed on its own stock exchange, and operating a securities market for the purpose of making a profit for its shareholders. Therefore it wasn’t a statutory regulatory body representing the general public interest, the bank argued, with the latter role filled by the Securities Commission. The Court of Appeal accepted BNZ’s arguments, finding that although NZX had some regulatory functions, it remained a commercial entity and didn’t fit in the same category as other regulators such as the Securities Commission. This meant NZX wasn’t immune to private duties and tort claims could be laid against it.
NZX then tried unsuccessfully to have the Supreme Court overturn the Court of Appeal ruling.
An NZX spokeswoman said as the case had been settled out of court, NZX would not comment. And a Deloitte spokesman said his firm couldn’t comment because it was legally bound by the settlement’s confidentiality terms. Nor would BNZ comment.
Any payment the settlement required NZX to make is likely to have been covered by the sharemarket operator's insurance. Meanwhile, payments listed in Stiassny and Gibson’s second to last report include “BNZ costs litigation settlement” of NZ$2.1 million.
In 2008 Peter Marshall, ex-managing director of Access Brokerage, was jailed for three years for fraud. He pleaded not guilty to 14 Serious Fraud Office charges of false accounting with the intent to defraud, and making false statements with the intent to defraud between August 2001 and July 2004. A jury of 11 found him guilty on all 14 counts.
A Securities Commission report on the demise of Access Brokerage released in December 2005 concluded there were “some shortcomings” in the development and early operation of NZX’s broker compliance programme.
“While the broker compliance plan was put to the CEO and Board for approval, implementation of broker inspection procedures was largely left to NZX staff who were relatively inexperienced in broker compliance programmes,” the Securities Commission said.
“We acknowledge that NZX had difficulty finding such experienced staff at that time. Supervision of the compliance team was inadequate. Issues elevated to the team supervisor and other executive management at times received little response.”
The Commission had reviewed procedures in place at NZX in 2003 and 2004, and in its report said since then there had been changes at NZX addressing many of the issues.
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