Investors in failed finance company Strategic Finance are set to share a further $22 million payout - roughly about 5c in the dollar - after the end of a protracted settlement process.
This is likely to mean a final payout for investors who had $383 million with the company of just 15c in the dollar. See our deep freeze list for details of other finance company failures.
The settlement was reached by the Financial Markets Authority and Strategic's receivers John Fisk and Colin McCloy of PwC with directors of Strategic and the auditors, who were BDO Spicers.
The deal has been reached on a "no blame" basis, although the FMA had previously found that the directors are likely to have breached the Securities Act by making untrue statements in a registered prospectus, investment statement and in an advertisement between March 2008 and August 2008.
However, the directors have provided the FMA with an "enforceable undertaking that they won't act as a director or promoter of a public issuer of securities for five years or accept appointment or employment or act as a Chief Executive Officer or Chief Financial Officer (or equivalent position) of a public issuer of securities for three years.
The directors involved are: Kerry Finnigan, Graham Edward Jackson, Marcel Aubrey Lindale, Timothy John Rich, Denis Grenville Thom and David John Wolfenden.
The FMA provided this background to the Strategic collapse:
Between August 1999 and August 2008 Strategic Finance Limited (Strategic) carried on the business of providing finance and other financial services, primarily to the property sector.
Strategic’s principal business involved lending money to property developers and investors in commercial, industrial and residential property in New Zealand, Australia and the Pacific Islands. Loans were made through term loans, bridging loans and development and construction loans, in a mixture of first, second and third-ranking facilities.
On 7 August 2008 Strategic placed a trading halt on all its securities. Trading of Strategic’s securities did not resume after the trading halt.
In December 2008 Strategic went into Moratorium. In March 2010 Strategic went into receivership. Strategic’s failure affected approximately 11,000 investors with a loss of $383m. The receivers have distributed to secured debenture investors 10 cents in the dollar during the receivership to date.
From April 2010 FMA (and before 1 May 2011, the Securities Commission) has investigated the conduct of the directors of Strategic and its subsidiary Strategic Nominees Limited with respect to Strategic’s compliance with disclosure obligations under the Securities Act.
Here is the full statement from the FMA:
The Financial Markets Authority (FMA) and the Receivers of Strategic Finance Limited (Strategic), John Fisk and Colin McCloy of PwC, have today announced that they have finalised a settlement with the directors and auditors of Strategic. Under the terms of the settlement the directors and auditors will pay to the Receivers of Strategic $22 million. This will enable the Receivers to make a further distribution to investors.
As part of the settlement, the directors have each provided FMA with an enforceable undertaking that they will not, without the prior written approval of FMA:
1. act as a director or promoter of a public issuer of securities for five years; or
2. accept appointment or employment or act as a Chief Executive Officer or Chief Financial Officer (or equivalent position) of a public issuer of securities for three years.
These undertakings are provided under s46 of the Financial Markets Authority Act 2011 and are available on FMA’s website.
The directors who were the subject of FMA’s claim and who have provided undertakings are Kerry Finnigan, Graham Edward Jackson, Marcel Aubrey Lindale, Timothy John Rich, Denis Grenville Thom and David John Wolfenden.
In February 2013, FMA announced that its investigation into Strategic had found that the directors are likely to have breached the Securities Act by making untrue statements in a registered prospectus, investment statement and in an advertisement between March 2008 and August 2008.
Separately, the Receivers have pursued claims against the directors, including under the Companies Act 1993, and against the auditors in respect of the 31 December 2007 audit.
“In reaching this settlement we are providing certainty and compensation to investors. We have also been mindful of avoiding a lengthy and costly court case, with potential litigation risk. The terms of the settlement deliver a strong deterrence message and include enforceable undertakings from the directors of Strategic not to act as a director of an issuer of securities to the public for 5 years,” said FMA Director of Enforcement and Investigations, Belinda Moffat.
“While the directors do not admit liability, FMA remains of the view that they are likely to have breached their disclosure obligations under the Securities Act.
“However, given the limited personal assets of the directors, this settlement represents the best outcome for investors in the circumstances,” said Ms Moffat.
The settlement resolves all claims as between FMA, the Receivers, liquidators, trustees, directors and auditors. The settlement sum will be paid over the next 6 months to the Receivers, who will distribute funds to investors in the same manner that the Receivers will distribute proceeds from the realisation of assets in the receivership. While this was a lengthy and complex process it is noted that the directors co-operated with FMA’s investigation.
And here is the statement from PwC:
PwC Partners John Fisk and Colin McCloy, as Receivers of Strategic Finance Limited (In Receivership and Liquidation) (Strategic), and the Financial Markets Authority (FMA), have announced today that they have finalised a settlement agreement with the former directors and auditors of Strategic for $22 million.
The settlement represents some 5 cents in the dollar for secured investors and will mean that total distributions to secured investors by the end of the year will amount to 15 cents in the dollar. As part of the settlement, the directors have undertaken that, without prior written approval of the FMA, they will not:
1. act as a director or promoter of a public issuer for five years; or
2. accept appointment as a Chief Executive Officer or Chief Financial Officer (or equivalent) of a public issuer of securities for three years.
The agreement settles civil claims made by the Receivers against Strategic’s directors for alleged breach of duties under the Companies Act 1993 and claims against the auditors for the 31 December 2007 audit.
It also settles claims made by FMA against Strategic’s directors for alleged breaches of the Securities Act 1978.
The settlements are made without any admission of liability by any party, and encompass all claims as between the Receivers, FMA, trustees, liquidators, directors and auditors.
Mr Fisk says, “The confidential settlements with the directors and auditors are subject to one remaining condition which is expected to be met over the coming months, with payments due to be completed by November, enabling the Receivers to make further distributions to secured debenture investors prior to the end of this year.”
Belinda Moffat, FMA Director of Enforcement and Investigations said, “The recovery of compensation for investors and the undertakings from the directors through this settlement is an appropriate response to FMA’s concerns and is in the best interests of investors. This resolution demonstrates the commitment and co-ordination between FMA and the Receivers to reach an outcome we believe will help to continue to restore confidence in our financial markets.”
Strategic, which had significant cash reserves in early February 2008, ceased ordinary course trading in early August 2008 and entered into a moratorium with its investors in December 2008.
It was eventually placed into receivership on 10 March 2010.
The Receivers’ claims against the directors and auditors have principally focused on losses suffered by the company during 2008, prior to the agreed moratorium.
The Receivers have also focused on recovery of the loan book whilst also investigating other potential recovery options for investors.
Mr Fisk says, “We are pleased that we have made a significant step forward in resolving one of the last major issues for the receivership of Strategic. The settlement process was rigorous and complex, but agreement was ultimately able to be reached between all parties.
“We have conscientiously weighed the negotiated settlement we have been able to achieve against the risks and benefits of litigation.
“In the end, and following consultation with key stakeholders, the decision by us and FMA to agree to the settlement will enable secured investors to have certainty and further funds before the end of this year.”
Work continues by the Receivers on realising the remaining loan book assets and concluding the receivership. A revised estimate of the final outcome for secured debenture investors will be provided in the Receivers’ next update.