Potential law breaches at CBL, says FMA

CBL managing director Peter Harris says he is working on a rescue plan.

The Financial Markets Authority says it has concerns about potential breaches of the Companies Act and Financial Markets Conduct Act by insurer CBL, as well as about the performance of its auditor Deloitte.

In a statement issued today the FMA said it had decided to provide an update on its investigation into CBL because of investor interest.

It said its preliminary assessment revealed concerns about:

• disclosures made as part of the initial public offer;

• continuous disclosure, in particular for matters which arose from mid-2017;

• financial reporting; and

• directors' duties.

Given the FMA’s mandate in auditor oversight, the FMA is also considering the performance of the auditor, Deloitte,” it said.

The FMA did not say what it plans to do about those potential breaches, nor whether it plans to take legal action on behalf of shareholders under its so-called section 34 powers.

However, it said whatever action it does take will be guided by three regulatory objectives:

• sending an important denunciation and deterrence message where misconduct is identified in an area of strategic importance to New Zealand’s financial markets;

• holding to account those considered most culpable for any identified misconduct, for example directors or a subset of directors;

• clarifying the law and providing important legal precedent for future actions.

It said it would not take action under section 34 solely to get compensation for shareholders but could help in that process by obtaining court declarations that could then be used by shareholders to pursue compensation.

The FMA said it would continue to liaise with the Reserve Bank and the Serious Fraud Office, CBL’s administrators and overseas regulators.

"Given the involvement of these other agencies and the complexity of the issues the investigation process is likely to take some time."

Trading in insurer CBL’s shares was halted on February 2 and suspended a week later.

On February 23 CBL’s main operating subsidiary CBL Insurance was placed in interim liquidation at the request of the Reserve Bank, which regulates insurers, prompting the appointment of administrators to the rest of the group’s New Zealand entities.

It is feared that CBL shares, valued at $747 million before the halt was imposed, are now worthless.

Three banks, ANZ, ICBC and Bank of China, are owed a collective $144m. At least two of those banks have taken impairments on their CBL loans.

Meanwhile this afternoon CBL’s chairman Sir John Wells announced his resignation, along with that of two independent directors Paul Donaldson and Ian Marsh.

In a statement to the NZX Sir John said directors had been working on raising capital in the lead-up to the intended announcement of CBL’s annual results on February 27.

“Regrettably, this was abruptly halted by events on the 23rd of February when the Reserve Bank of New Zealand applied to the Court to liquidate CBLI, and voluntary administrators of the CBL Group were appointed.”

The independent directors had been trying to preserve value in the CBL group since then but their role had been limited to helping the liquidators and administrators, he said.

“We now feel we can simply do no more for shareholders and with little power or authority, our resignation is the appropriate option in these circumstances, and provides clarity and certainty over our position.”

A fourth independent director, Tony Hannon, remains in office alongside managing director Peter Harris and deputy chairman Alistair Hutchison.

Sir John said the directors were aware Mr Harris and Mr Hutchison were trying to develop a rescue plan.

“They have consistently stated their wish is to ensure the best possible outcome for policyholders, creditors and shareholders. We support this objective and wish them well in this endeavour.”

In a statement issued through a PR firm, the remaining CBL directors said they would like to acknowledge the valuable contribution made by te departing directors.

“Details of a refreshed board will be announced when the restructure is tabled with shareholders,” it said.

No date was provided for when the plan would be made public.


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23 Comments & Questions

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Barn doors and horses anyone? And any comment or apology from the Reserve Bank to investors?

If the banks have already taken impairments then CBL is toast and in a big way.

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So what - yet another slap over the hand with a wet bus ticket??

The whole regulator response across the board is a joke

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At the risk of being repetitive Crackity, it is, in my very humble opinion, the FMA that bears the biggest weight of responsibility for the CBL disgrace, with the RBNZ a “closeish” second. The FMA knew back in September 2015 about “Disclosures made as part of the initial public offer” and did NOTHING, The RBNZ knew back in late 2013-early 2014 about CBL’s previous activities in Georgia and they TOO did NOTHING! What still amazes me is the talk about the FMA perhaps going after CBL on behalf of investors. The investors, again in my humble opinion, should be going after the FMA. As far as “Barn doors and horses” are concerned, some HAVE already bolted, it looks as though a few more ARE bolting and the FMA could well be left to flog the DEAD one.

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If anyone has a right to be repetitive I reckon it is you. I think you are about to be vindicated in a big way.

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Thanks Crackity and maybe so, maybe so. As Ronald Reagan said back in 1984, "You ain't seen nothing yet!" What HASN'T been put into the public about CBL, and of which I have first hand knowledge, is the stuff of books and movies and ALL non fiction. You couldn't make it up

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Joint lead managers to the Offer were UBS and Forsyth Barr. CBL was also advised by Bancorp and Minter Ellison Rudd Watts.

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thanks for those comments.its important to remember the investment banks behind disasters.forsayth Barr were also involved in feltex from memory.

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I wrote to Minter Ellison back in late 2015, early 2016, all I got by way of reply from the lady to whom I wrote was an out of office reply bsaically saying "I am on holiday overseas, back in January 2016" End of conversation

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Ahh.... the incompetence at the FMA reaching new levels. I believe the proposal had been for directors to inject equity to stave off creditors and keep CBL going. Little to no chance of that happening now.

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Really Andy

Weren't CBL using the money they transferred out of the company to recapitaluse it?
Hardly inspiring or new money. Just repaying money
They should do that anyway

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OH, AndyB, I could tell you all sorts of things about the FMA. What do you think of this, from a senior solicitor at the FMA dated 13 November 2015. This is verbatim from his email! "At this present time the information provided to us by the issuer suggests that all proceedings are appropriately accounted for. Our review has also shown that the due diligence processes of CBL appear sufficiently robust to give us confidence in these processes.
The overall impression conveyed by the PDS is that there were potential irregularities in the conduct of CBL in the US so any investor is on notice of these historical issues. On that basis our current position is that we do not believe that there is sufficient evidence to determine that the disputed statements in the PDS are misleading and materially adverse from the point of view of an investor." I wonder if he is still of the same opinion

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The proposal by the Directors if you read carefully if accepted took away the rights to sue the Directors; it was a poor attempt by those Directors to buy protection: Also Forsythe Barr : were they not involved in the Feltex debarcle?

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How can the director Tony Hannon, named above as an independent CBL director, be considered independent when he was also a director of, or had interests in, or close business associations with Bancorp, who put the CBL float together.

Anthony+Charles+Russell+HANNON
has 180 lines of directorships, some with IMO singularly unimpressive track records, including being on the board of various NZ Ski racing entities in recent decades where he saw no conflict with his then Treble Cone roles.

refer

https://app.companiesoffice.govt.nz/companies/app/ui/pages/individual/se...

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the above hyper link does not work

go to
https://app.companiesoffice.govt.nz/companies
then search under directors for

Anthony Charles Russell HANNON

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How magnanimous of Sir John Wells for "staying on and preserving value in the CBL Group"

Is he for real?
Hopefully his knighthood won't stop him from being culpable if there are charges that arise from the various enquiries. He was also a board member of Bancorp that promoted the CBL listing.

Might be yet another whitewash for the blue bloods

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Basic corporate governance processes OBVIOUSLY not in place or followed when the company could wantonly ignore the directives of the Reserve Bank.

Was Sir John as Chairman misled and circumvented by the other executive directors or like Sir Doug Graham, not diligent enough to chair the company?

Either way, minority shareholders have lost everything and the two China banks have taken a bath with their NZ corporate lending.

Someone must be held accountable.

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Interesting what you say about Sir John Wells. I read about his appointment as INDEPENDENT (I think it was) chairman, and his bio saying what a great guy he was. I toyed with the idea of writing to him to tell him about CBL's history but then I saw that he was involved with Bancorp and decided that it probably wasn't worth it. There are various organisations like Alcoholics Anonymous, Narcotics Anonymous etc etc, I wonder if there is one called "MINDERS Anonymous?"

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Agree Minders Anonymous run by the legal profession- across the board and at every level

They have to protect the blue bloods as they give opinions and charge a fortune and risk getting sure when things go wrong
The more money you acquire by questionable means the more money you have to pay the legal profession to protect you and delay any action. And the longer you can afford to delay action the more chance the authorities will settle out of court as their budgets don't allow long and expensive challenges

So in the end the blue bloods win no matter what

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You got that right The Scribe. The case of my son and I against CBL went all the way to the Supreme Court and achieve only a great pay day for the lawyers, kept CBL out of trouble and created a precedent for litigation funding in New Zealand.. The fact that our court case was on the go from 2010 to around 2014 is another thing that makes me curious about the RBNZ ignoring what I sent them in 2013-2014. Interesting eh? I would have thought that might have been just a LITTLE bit curious about what was going on, surely they would have known about it.

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So whose going to investigate RB and FMA given their answers to my OIAs indicate both have breached their operating legislation and regulation.

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Very interesting Lastmanstanding. We seem to be on parallel paths. I was doing research yesterday and found, first of all that the Minister of Commerce has responsibility for the FMA. I am already waiting to hear from him about "Financial Abuse of Seniors" which was shuffled off to him by the Seniors minister who said that banks selling "junk Insurance" to seniors is not financial abuse. I went on the FMA website and there is a complaint procedure there so I decided to give it a go. I am "supposed" to receive a report ithing 10 working days, so we shall see. If you are not satisfied with the OIA replies, the Ombudsman might be your next port of call

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Auditors not doing their jobs properly, who would have thought? Back in the days of the finance company debacle many never noticed anything wrong. It would seem not much has changed.

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I wonder if so little appears to have changed in so many areas might be because most, if not all, belong to "the funny handshake brigade."

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