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$900,000 Nathans reparation might go to fighting fund

Justice Heath orders Nathans Finance reparation money to go to receivers.

David Williams
Thu, 28 Jun 2012

Court-ordered reparation from the disgraced directors of collapsed finance company Nathans Finance will be paid to the company's receivers and might be used to fund further legal action.

In a just released judgment, Justice Paul Heath says spreading the $885,000 to the 7000 out-of-pocket investors would not garner material distribution and says the money could be used by receivers PricewaterhouseCoopers to "pursue other means of recovery".

Justice Heath says there is a prima facie case for Nathans to sue its directors under the Companies Act.

Nathans Finance went belly-up in 2007 owing $174 million to 7000 investors.

Directors Kenneth Roger Moses and Mervyn Ian Doolan and Donald Menzies Young were found guilty of misleading investors about a Nathans prospectus aimed at raising $100 million from the public.

Moses and Doolan, who were jailed, and Young, who received home detention, were ordered to pay reparation totalling $885,000. John Hotchin, who pleaded guilty before the trial, has already been ordered to pay $200,000 reparation to the receivers.

In determining who the $885,000 should be paid to, Justice Heath says receivers PricewaterhouseCoopers are the most appropriate recipients.

"It seems to me preferable that the reparation be paid to the receivers of Nathans who can then use it for the benefit of all who have suffered loss," Justice Heath says.

The judgment says: "A sum of $885,000 (plus accrued interest), is likely to be of greater assistance to the general body of investors (because it provides a fund from which the receivers could pursue other means of recovery) then the likely dividend to be paid to those who invested or reinvested after 13 December 2006."

Justice Heath says most investors would not get much of a dividend from the reparation money, particularly after the receivers' costs are deducted, but it would be prudent for PwC to ask investors how they'd like the money to be used.

Prima facie case

Nathans' indebtedness to public investors increased from about $154 million in December 2006 – when the prospectus was issued – to about $174 million nine months later, when the company collapsed.

Justice Heath says through the actions of its directors, Nathans paid that $20 million to others primarily associated with parent company VTL Group Ltd – a vending machine franchise business struggling to break into the US and European markets.

"Given the increases in both inter-company and VTL business-related indebtedness in the period between 31 December 2006 and receivership, there would be at least a prima facie case for Nathans to sue its directors [under the Companies Act] for incurring obligations at a time when there was no reasonable grounds to believe they could be performed on due date."

The issue facing Justice Heath was whether the reparation should go to those who invested or reinvested after December 13, 2006 – the date the offending prospectus and investment statement were distributed, or to PwC for the benefit of all investors.

The Crown and receivers agreed almost $69m was invested or reinvested between December 13, 2006, and August 20, 2007, when the company collapsed.

At Justice Heath's request, Crown prosecutor Brian Dickey argued the money should be paid directly to the investors directly affected by the mis-statements.

Receivers' lawyer Murray Tingey, argued Nathans should be classified as a "victim" under the Sentencing Act and the receivers should be paid the reparation.

Justice Heath says he does not know if Nathans investors relied on the misleading statements in the offer documents, adding: "The criminal convictions simply demonstrate that anyone who did rely on them would likely have been misled."

Investors who would have received a greater dividend had the company been placed in receivership at the end of 2006 were equally entitled to be classified as suffering loss as those who relied on the document, the judge says.

David Williams
Thu, 28 Jun 2012
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$900,000 Nathans reparation might go to fighting fund