Published 14 April 2010
The Securities Commission said yesterday it had issued civil proceedings under the Securities Act against Lombard Finance & Investments Ltd directors Sir Douglas Graham, Michael Reeves, Bill Jeffries & Laurie Bryant.
Commission chairman Jane Diplock said the regulator was also continuing its investigations in relation to Lombard Finance & Investments and its parent company, Lombard Group Ltd (and their respective directors) and was considering further proceedings.
Meanwhile the restructuring of Lombard’s insurance business neared completion, through the reverse takeover of Perth company Australian Consolidated Insurance Ltd.
On the legal proceedings, Ms Diplock said: “These proceedings follow extensive investigations by the commission since Lombard Finance & Investments went into receivership on 10 April 2008 owing $127 million to 4400 investors. According to the receivers, it is likely that secured debentureholders will receive less than 30% of their investment back. Unsecured creditors are likely to receive no return.
"The commission alleges that Lombard Finance & Investments’ offer documents & advertisements misled investors by misrepresenting the investment risks, especially in relation to liquidity, the quality of the loan book, adherence to credit policies and the company’s overall financial position.
“The commission alleges that the directors made false statements in the registered prospectus dated 7 September 2007, as amended by a memorandum of amendments dated 24 December 2007 and investment statements dated 28 December 2007. The documents stated the company’s financial position had not materially & adversely changed since the company’s last balance date and that the prospectus was not misleading by failing to properly refer to adverse circumstances. However, the commission alleges this was false and the directors’ statements misled investors.
“In addition, the commission alleges that a DVD advertisement distributed during 2007 & 2008 contained similar untrue statements about the financial position of the company.
“The commission has applied for declarations of civil liability & civil pecuniary penalties of up to $500,000 against each of the current 4 directors. Under the Securities Act, these applications must be made together.
“The commission’s main purpose in making them is to take the first step towards compensation for investors who invested under the 7 September 2007 prospectus, as amended by a memorandum of amendments on 24 December 2007. A declaration of civil liability is conclusive evidence that can be relied upon by either the commission or investors themselves in any subsequent claims against the directors for compensation. The commission will consider pursuing compensation claims in due course, should it be in the public interest to do so.
“Investors can take their own civil compensation proceedings, whether or not the commission also has power to do so. The civil proceedings are issued under section 55C & related sections of the Securities Act. They were filed on 1 April at the Wellington High Court.”
Ms Diplock said the commission acknowledged the assistance of PriceWaterhouseCoopers, the Lombard Finance & Investments receivers, with this investigation.
Mr Reeves was Lombard’s driving force, as managing director. Sir Douglas was chairman of the listed company but resigned the day after the receivers stepped in. Mr Bryant, a public relations man, resigned a week later.
Sir Douglas was National’s Justice Minister, Attorney-general & Minister in Charge of Treaty Negotiations in the 1990s. Mr Jeffries was a Labour Cabinet minister in the late 1980s, holding the justice & transport portfolios.
Sir Douglas issued a statement saying the directors didn’t accept the allegations and would defend all the proceedings: “The prospectus was prepared by management, commented on by the auditors & solicitors and then accepted by the Companies Office. The document was sent to the trustee. None of these advised the board of any concerns with the final warning.
“Finally, I must record my dismay that it has taken 2½ years to make the allegations and very disappointed the commission has never raised with me any concerns it had over the prospectus prior to filing proceedings.”
The NZX-listed parent company, Lombard Group, Ltd changed its name to Insured Group Ltd on 31 March and has completed the migration of its place of incorporation from New Zealand to Australia, in accordance with the reverse takeover proposal put to shareholders last June.
Lombard/Insured’s takeover offer for all the shares in Australian Consolidated Insurance closed on Monday with 95.28% acceptance and managing director Wayne Miller, of Perth, said the company would proceed to compulsory acquisition of the balance. Mr Miller said the Securities Commission action wouldn’t impact on the continuing insurance company. On completion of the reverse takeover, all the shares in Lombard Finance & Investment had been transferred to a new holding company, First One Ltd, which was owned by Lombard’s original shareholders. Lombard had previously written off the value of its shareholding in Lombard Finance & Investment. “The proceedings are part of the history of Lombard, which shareholders in the listed company have left behind as the company moves into its new future as a substantial participant in the insurance broking business in Aust