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Slater and Gordon teams up with Turner Hopkins to launch class action law suits targeting trustees and others around finance companies. Your view?

Slater and Gordon teams up with Turner Hopkins to launch class action law suits targeting trustees and others around finance companies. Your view?

By Amanda Morrall

Trustees, auditors and other professionals who walked away unscathed from finance company collapses are being targeted in an unprecedented class-action style lawsuit that aims to settle the score for investors who lost more than NZ$2.3 billion.

Australian litigation heavy-weight Slater & Gordon, together with Auckland firm Turner Hopkins, announced Wednesday an ''investigation into the viability of legal action'' against various parties who could potentially be held liable for more than NZ$2 billion of losses suffered by investors in the likes of Hanover Finance, MFS Pacific, Bridgecorp, Strategic Finance and St Laurence.

On its website, Turner Hopkins outlines the case for victims of failed finance companies in New Zealand and invites prospective clients to register their interest. The two firms say they have been investigating 'the myriad of finance company collapses' for more than 12 months in the lead up to this announcement.

"The object of these investigations is to explore the viability of bringing a representative legal action against one or more parties who may be liable for losses sustained by investors,'' said Turner Hopkins lawyer Andrew Hooker, who is leading the action from New Zealand.

The announcement comes on the heels of a settlement agreement struck Wednesday by Slater & Gordon with trustees of failed Australian finance company Fincorp. At least seven New  Zealanders are expected to benefit from the settlement.

Slater & Gordon's other legal victories include class-action driven compensation for asbestos, tainted-blood and breast-implant victims.

Hooker said legal action of this nature was unprecedented save perhaps the Feltex case.

That's because New Zealand law has no provision as such for class-action lawsuits. A draft Class Actions Bill and other proposed changes to High Court Rules have been languishing with the Ministry of Justice for a year. (For more see article by Gareth Vaughan).

Hooker said a common law device known as representative-action could achieve the same effect as a class-action lawsuit.

'Numbers not a problem'

While group action of this kind would require a threshold of complainants, Hooker suggested numbers would not likely be a problem based on the level of anger and volume of investors who were burnt by finance companies.

He said the Fincorp settlement, worth an estimated A$30 million, bode well for investors here. (For further details on  Fincorp settlement see Slater & Gordon's release here.)

"While Australian and New Zealand law differ in some respects, the  Fincorp case involves very similar circumstances to what occurred in New Zealand. This raises the real prospect New Zealand victims may be able to receive compensation from Trustee companies following the collapses of local finance companies over the past few years.''

Between 2006 and 2009, around 30 finance companies went under or faltered affecting more than 20,000 investors, most of them retail 'mum and dad' types. The numerous trustees overseeing operations have not been held to account.

Despite reports of class-action against Perpetual Trust (for its involvement with Capital + Merchant Finance)  Christchurch lawyer Grant Cameron said preliminary steps had subsequently been abandoned.*

Hooker said the group-action, if successful, would result in investors being able to recoup some of their losses. The fact that it would not cost the complainants up front, would invariably made it more appealing, said Hooker.

"There's heaps of individuals who've lost everything and yet have no financial ability to fund the litigation. That's why this initiative, with backing from Slater & Gordon, is a real runner. People can join at no costs, once funding is finalised.''

(For a complete list of failed finance companies as well as a list of the trustees that served them, those auditors that were involved and an account of how much lawyers and receivers were paid in fees see interest.co.nz's deep-freeze section.)

While Slater & Gordon did not specifically name any trustees, Hooker said that those being pursued would be the ones associated with the finance companies named above. In most cases that meant the 'large and solvent' ones who were likely to have 'significant insurance.'

In a statement pitched at prospective clients, Slater and Gordon assures finance company victims of their rights.

"Investors are entitled to ask questions of the five trustee companies who were responsible for overseeing these finance companies and monitoring compliance with the trust deeds upon which investors funds were entrusted," Hooker said.

"The essence of these claims,'' it further states, is "that certain trustee companies breached their trustee deed obligations by failing to conduct appropriate diligence of the loan book assets of the finance companies and failed to identify inappropriate related party transactions.''

Separate investigations would also be directed at auditors and director companies.

Despite the Retail Deposit Guarantee Scheme, introduced in October 2008 to prop up the ailing finance sector, scores of investors with money in 30 odd finance companies lost out.

Massive losses

"While some investors have been more successful than others, the rate of recovery has generally been low, with some investors recouping as little as 10% of their original investments,'' writes Slater & Gordon.

Subsequent investigations shed light on the 'murkier aspect of the finance industry in New Zealand, it adds.

"The pattern that has emerged is one in which rather than providing secured finance for investment activities, these company were effectively joint-venturing in property development activities by agreeing to extend loan terms in exchange for potentially more lucrative but risker loan conditions.

"Further, loans were being made to related companies of the finance companies.''

As the bubble burst on the New Zealand property market, it triggered a deleterious knock-on effect for investors.

"Despite the continuing diminution in the value of their loan books, finance companies continued to issue more prospectuses containing reassurances about the security of debentures. Unfortunately, too many retail investors took these investment opportunities up.''

To date, two finance company directors have been ordered to serve jail time on charges related to finance company failures.

Nicholas Kirk and and Marcus Macdonald, ex directors of Five Star Consumer Finance, were sentenced to two years and eight months and two years and three months, respectively for theft of NZ$50.1 million.

The sentences related to charges brought under the Crimes Act by the Serious Fraud Office (SFO) and the Ministry of Economic Development for related party lending.

Anthony Bowden, another ex-Five Star director, received nine months home detention and 300 hours of community service. A fourth director, Neill Williams (said to have masterminded the scam) has yet to be dealt with after electing to change his guilty plea. A disputed facts hearing was slated for this month.

Eric Krecichwost, head of Fincorp,is to be sentenced later this week after being found guilty of allegations from the Australian Securities and Investments Commission that he used his position as company director for personal financial gain.

(Clarifies reference to class-action lawsuit against Perpetual Trust as reported by the National Business Review March 4 and March 24).

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17 Comments

ambulance chasers... oh well... seemed to work with the RC church (nothing else did).

Any other competitors?

While encouraging, the prospect of losing half of any rewards to the lawyers tempers this a bit.

I still think a few public floggings would have a better chance of securing recovery. We know that it was criminal minds at work to mastermind all the schemes so why much around with the courts, just drag the bastards out into the towns square for their justice. Instead of worrying about how to develop Queens Wharf, just put up a bit of temporary seating for the spectacle. Heck you could probably help make a bit of money for the victims out of ticket sales.

I had a good laugh ( really!) at your 'better' suggestion, scarfie. Perhaps we could make it mandatory for those that just get 'home detention' to have to go along to the Green or Sqaure and watch...from the front row....

The best suggestion seen so far was from Matt Taibbi of Vampire Squid fame who reckons if they put just one of these masters-of-the-universe (ie Lloyd Blankfein) in a "bang-em-in-the-arse" correctional facility, the problems would soon disappear, quick-smart.

How can a public flogging secure a better chance to recover stolen momey? I am not against public flogging and I am not against taking a blood sample of at least 12 litres from these creatures, but neither would help in the recovery of millions stolen by deceit, deception, fraud and lies.

It was the government which promised to regulate the finance industry after the 1978 debacle. Todate, 32 years later, it has done exactly the opposite. Nothing. 

It was the government, which again promised to regulate the finance industry after its 2007 collapse and 4 years later has again done absolutely nothing to ensure investors' money is secure. 

The responsibility therefore, to get the stolen money back, does not lie with the mum- and dad investors but with the government. Government should, as a matter of urgency and social responsibility, first of all refund the money stolen from mum- and dad investors and then battle it out with the trustees and other, supposedly supervising, entities to get that money back from them.

You make some good comments and I agree with you.

While a little tongue in cheek there is also a serious element to what I propose. If you did actually do this then those others that are hiding money they have pilfered might be a bit more willing to give back.

There is also the prevention factor.

Downside is given the way this country operates is that these turkeys who have stolen money are just as likely to end up using flogging as a tool for themselves. Definitely open to abuse and would only work with wholesale changes to the way we govern.

The 3 main "class action" outfits running around are

  • Slater & Gordon
  • Maurice Blackburn & Co
  • IMF Australia

They have been active in this growing business field with a lot of success. Haven't heard any of the aggrieved "class members" complain, and have yet to hear of any failures. Interesting development is the arrival of US "hot money" into the game. Good return on their investment. see http://www.abc.net.au/lateline/business/items/201102/s3126285.htm

Litigation funders on average will take between 25 to 45 per cent of the sum obtained in the case

After being fleeced by one bunch of sewer dwellers they then get done over by another bunch. Still 55% is better than 0% iconoclast, although refer above for a cheaper method:)

This bit is interesting: From bushfires to bank fees, it seems everyone is joining a class action. Some say Australia risks a US-style culture of litigation.

I hear that the CBD Sydney has a greater percentage of floor space devoted to lawyers than New York and are in fact already more litigious than the US. I don't think we want to go down that path, but do need a better way of dealing with the rats at the top.

I read a few years ago that we train 3 lawyers for every engineer, whereas Denmark trains 6 engineers for every lawyer. That 18:1 disparity I suspect lies at the root of a lot of this countries problems.

Ever had to spend much time in a court room?

I'm not much of a gambler, but if the TAB were to offer odds on the success of such a case, I'd feel that a very, very safe bet!  However, so would, I suspect, the TABs bookmakers, so the payout on a win would be pretty thin on the ground.

:-)

A bit of trivia - Julia Gillard worked for Slater & Gordon before politics.

You can bet on this .. as in anything .. you only get one chance at looking good, and Slater & Gordon will be very aware of that in their frist foray into NZ, so in going with the public announcement now you can rest assured they have got all their ducks in a row. Call it establishment fees. 

Just another thought on debt collection. I hear some of the gangs use their leverage to do a bit of this sort of business.

Rumour is they also take 50%, but it is pure pro bono.

Quite frankly I don't think they are any worse than the lawyers and there might be a bit more satisfaction in it.

Well if I had lost a significant amount of savings to these companies and had no hope of getting any of it back, I would be happy to cut my losses and get 55% of it back, and put the loss down to experience.  The process would offer some 'public flogging', although I agree, the more humiliating it turns out to be, the better.

Do you think these people really believe that they are getting away with what they have done, or do you think they will have prepared themselves for retaliation?

 

Trustees will take aim at the auditors and the battle will ultimately be between the various insurers, and who has deepest pockets. I suspect a lot of out of court settlements may occur. Who knows? Perhaps even the sec. comm. may get dragged in.

Ultimately if this scenario pans out you would have to conclude that the trustee service is so broke that the rbnz would need to act. And decisively. Replacing this mechanism with something else that will help restore investor confidence.

My suggestion would be simple - let the auditor perform the same task as the trustee now, as fundamentally it is simply reviewing a return each month end. Presumably the auditor would have a much better understanding of the business and actually be able to delve into the numbers (which the trustee can't do unless they call in an expert) furthermore instead of twice yearly audits which are costly and frankly a waste of time, they should legislate for a protestation of auditor say every three years.

Trustees will take aim at the auditors and the battle will ultimately be between the various insurers, and who has deepest pockets. I suspect a lot of out of court settlements may occur. Who knows? Perhaps even the sec. comm. may get dragged in.

Ultimately if this scenario pans out you would have to conclude that the trustee service is so broke that the rbnz would need to act. And decisively. Replacing this mechanism with something else that will help restore investor confidence.

My suggestion would be simple - let the auditor perform the same task as the trustee now, as fundamentally it is simply reviewing a return each month end. Presumably the auditor would have a much better understanding of the business and actually be able to delve into the numbers (which the trustee can't do unless they call in an expert) furthermore instead of twice yearly audits which are costly and frankly a waste of time, they should legislate for a protestation of auditor say every three years.

audits are not necessarily a waste of time, just have to get the methodology right and the regulatory requirements correctly set.

(2) x audits a year is a watse of time. One audit is fine, besides the audit opinion may not be signed off until next period by which time the next audit commences at any rate.

In cases of a property financier this implies that the directors could be forever getting valuations done just to satisfy the auditor, and yet have no control over the sign-off date.

This is toally unsatisfactory considering the Directors are placing their necks on the block now with criminality coming to the fore in terms of a misleading prospectus. 

In the midst of the GCC - values were falling month to month, day by day.  Essentially very litte reliance could be placed on a registered valuation.

Who would want to be a Director? Its like lambs to the slaughter