The Financial Markets Authority (FMA) has filed civil proceedings against Prince and Partners Trustee Company Ltd, which was the trustee for failed finance company Viaduct Capital Ltd.
This action is the FMA's first use of its powers under Section 34 of the Financial Markets Authority Act, which enables the regulator to stand in the shoes of another, and exercise that person’s right to take action. See more on this here.
The FMA has already brought separate criminal charges against several individuals associated with Viaduct Capital and those matters are still before the Court.
When Viaduct collapsed its deposits were covered by the government's Crown Retail Deposit Guarantee Scheme. The FMA's claim alleges Prince and Partners breached the obligations it owed to Viaduct investors and to the Treasury under the guarantee scheme.
The FMA further alleges that Prince's conduct resulted in losses to individual investors and to the Treasury. In a statement, the FMA said it had serious concerns about Prince's conduct as the trustee for Viaduct.
"The FMA has determined that it is appropriate for the Court to consider the conduct in this case, and where appropriate to award compensation to investors who suffered loss as a result of Prince's failure to fulfil its obligations as Trustee," the statement said.
First case against a trustee
This is the first case the FMA has taken against a trustee.
"Trustees play a critical role in protecting the rights of investors and it is vital the public have confidence that a trustee's obligations will be discharged," FMA director of enforcement Belinda Moffatt said in the statement.
Viaduct Capital was tipped into receivership by Prince & Partners Trustee Company in May 2010 with the trustee saying this was to protect investors' interests through an orderly realisation of the company's assets.
Receivers McDonald Vague said 110 Viaduct Capital secured depositors were owed $7.8 million. Under the Crown guarantee, 94 depositors owed $7.3 million were covered. However, 16 depositors who invested $515,455 after Treasury withdrew the guarantee from Viaduct Capital weren't covered. Treasury withdrew the guarantee after deciding Viaduct had used it inappropriately, without specifying details.
McDonald Vague said about 95% by value of investors qualified for repayment under the Crown guarantee scheme. The receiver said depositors could receive about 20 cents to 27 cents in the dollar, but this depends significantly on the recovery of one large loan.