UPDATED: Hotchin settles with Perpetual before appeal to draw into FMA case
UPDATED: Mark Hotchin, principal of failed finance company Hanover, has reached a confidential settlement with one of Hanover's trustees, Perpetual Trust, leaving only Guardian Trust as a party to his Supreme Court bid to have the trustees included in the Financial Markets Authority’s civil case against the former lender’s directors and promoters.
In mid-2013, Justice Helen Winkelmann agreed with New Zealand Guardian Trust Co and Perpetual Trust to strike out a claim by principal Mark Hotchin that would have drawn the trustees into the FMA’s civil case. Mr Hotchin is now appealing against the Court of Appeal in the Supreme Court, after it dismissed his challenge to the High Court's decision.
Appearing in the Supreme Court before Chief Justice Sian Elias, Justice William Young, Justice Terence Arnold, Justice Susan Glazebrook and Justice Mark O'Regan, Mr Hotchin's lawye,r Nathan Gedye, QC, said the case against Perpetual had been abandoned as Mr Hotchin and Perpetual had reached a settlement agreement.
The appeal covers “whether the Court of Appeal was correct to uphold the striking out of Mr Hotchin's third party claims against the respondents.”
Mr Gedye argued the facts concerning the Hanover directors and the trustees are “intertwined” and should appear together at the trial because of the information flows between the two, which he said had been accepted by the FMA. The trustees and directors are linked by the harm caused to the investors, regardless of the different actions on each side which may have led to the harm, he said.
"It offends justice that the trustees are not required to contribute," Gedye said, calling the previous decision a "repugnance of justice."
The FMA is pursuing the former Hanover directors and promoters in a civil suit over the period between December 2007 and July 2008 when $35 million was deposited by investors with the failed lender. A 12-week hearing in the High Court in Auckland will start in September when defendants Mr Hotchin, and fellow Hanover directors and promoters Eric Watson, Gregory Muir, Tipene O'Regan, Bruce Gordon and Dennis Broit will face the regulator's claim they signed off on untrue prospectuses and misleading advertisements.
David Cooper, appearing for the NZ Guardian Trust in the Supreme Court today, argued that the trustees could not be liable for misleading statements in the prospectus, and the harms caused to investors were of different types owing to the different duties the trustees and the directors had to the investors.
The FMA's case comes after the Serious Fraud Office completed its $1.1 million, 32-month probe into Hanover in 2013, which raised some concerns around the lender's behaviour but found nothing that crossed the threshold to warrant a criminal prosecution.
The financial markets regulator is seeking compensation, declarations of civil liability, civil pecuniary penalties of up to $500,000 against each of the five directors and promoters, and says they each face a five-year management ban if pecuniary penalties are found.
Hanover Finance froze $554 million of funds for its 17,000 investors in July 2008 after running into financial difficulties, before convincing them to accept a disastrous deal where their debt was swapped for equity in Allied Farmers the following year.
The judges reserved their decision and will give notice if there is need to delay the FMA's trial September.