Lombard Finance was 'sailing very close to the wind' - Sir Douglas Graham
The Court of Appeal has heard tight liquidity led to Lombard Finance’s amended prospectus in 2007.
In an exchange with Justice Tony Randerson, Lombard Queen's counsel Jim Farmer agreed that former Lombard board chairman Sir Douglas Graham said in December 2007 the company was “sailing very close to the wind.”
Mr Farmer said the board realised the next six months into the early half of 2008 would be tight and the company would be in a very vulnerable position if loan repayments were not made.
Former directors Laurie Bryant, Bill Jeffries, Sir Douglas and chief executive Michael Reeves are appealing their convictions and sentences for misleading investors by signing off on offer documents which omitted material information about Lombard’s liquidity in late 2007.
All four escaped jail when they were sentenced in March last year, but the Crown wants their non-custodial sentences quashed and the four jailed.
Mr Farmer has told Justices Randerson, John Wild and Christine French Lombard was a “well-run company.”
He said conditions throughout 2007 became increasingly difficult and the directors were well aware of the worsening economic cycle.
“By December, directors were seriously concerned about liquidity – do you agree?” Justice Randerson asked.
“Liquidity was a concern and the directors amended the company’s position with an accurate and true prospectus,” Mr Farmer said.
Mr Farmer earlier told the court reinvestment rates in Lombard Finance were healthy in the months leading to its collapse, because it was considered a “blue-chip investment."
“Lombard’s directors were expecting a drop in reinvestment rates, following the collapse earlier in 2007 of Bridgecorp and the stigma which was attached to it. But Bridgecorp was run by someone who was notorious,” Mr Farmer said.
The appeal is continuing.
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Comments and questions11
Ignorance is not a defensive.
Its time Justice is served consistently in this country.
White collar crime has cost this country way more than blue collar crime. Judges should realise that blue collar crime is a byproduct of white collar crime, rather than the other way round.
Governance must have been non existent to lose 80% plus of the total portfolio.
That in itself must hold them accountable?
If they are claiming reinvestment rates were healthy in the months leading to collapse, then why the liquidity crisis? If investors were still reinvesting then the problem must have been with low quality loans not being repaid and/or a mismatch of timing between the lending and funding books. Either way, what this evidences is incompetent governance, which is no defense.
You can't blame Lombard, for soliciting for new funds when things were looking decidedly sick. Because, had they conveyed their true position -- in terms of low reinvestment and the number of their distressed loans that were haemorrhaging -- it would have triggered a run on their diminishing funds. They needed more money, to pay off the maturing debenture holders and to uphold the artifice of "blue chip".
There is nothing wrong with soliciting for new funds as long as you accurately represent the actual financial position of the company at the time. If you don't fully disclose a squeeze on liquidity then that is a misrepresentation to investors and you are likely guilty of a serious fraud.
that is why they are in the position they are in. They should have closed the doors. By leaving them open they rolled the dice.
Mr Farmer said ------- ---- ---"Lombard was a very well run company"
WHAT!!!!! I'd like to see a poorly run one then.He obviously has low expectations.Lets all put our last dollar into Lombard,a very well run company.Any takers.No,well you've been told by no less than a Q.C.
Lombard hit liquidity problems because its lending was of low quality, with exposure to other finance companies and property lending.
Blaming the GFC for this is a disgrace. If you gamble in a property bubble it is completely forseeable there will be a correction just as happened twenty years ago. Being blinded by the greed of property developers paying big fees is no defense.
About time New Zealand got tough on all crime, and this includes blue-collar crime. Why do we have to watch them get away with this?
Funny how they always seem to blame Bridgecorp for the bad look they get when these directors are on trial. Yes, Bridgecorp was the ultimate in criminal cases resulting in finance company directors being jailed but they all must be held accountable regardless who is to blame or not. Ignorance is no excuse. The outcome will be interesting when the trial is completed.
There was nothing, irresponsible, abnormal or criminal about Lombard's practices and if no unexpected meltdown in the global economy had struck in March 2008 we wouldn't be having this conversation.
But can someone please remind me what the word "speculation" means? If investment ventures could immunize themselves against the unpredictable then they wouldn't be called "ventures".