Finance directors dispute Crown charges

Two directors of failed finance company Capital + Merchant Finance have applied to have some charges against them dropped on the basis they didn’t sign certain offer documents.

However, the Crown argues that is irrelevant because they later signed documents extending and amending the prospectus – implying the offer documents were true.

Directors Neal Nicholls, Owen Tallentire, Colin Ryan and Robert Sutherland, together with Wayne Douglas, who was registered as a director in February 2007, face charges under the Securities Act.

The Securities Commission (now Financial Markets Authority) alleges the directors made untrue statements in the company’s August 2006 registered prospectus and investment statement.

It also alleges that the current four directors made untrue statements in the registered prospectus and investment statement dated September 10, 2007, by incorrectly stating that no loans were impaired and the company's financial position had not materially and adversely changed since its last balance date.

Five advertisements distributed during 2007 contained untrue statements, it is also alleged.

Capital + Merchant Finance went into receivership in November 2007 owing about $167 million to 7000 investors. Receivers expect no money to be available to investors.

Most of the criminal charges the directors face carry a maximum penalty of five years imprisonment or fines of up to $300,000.

In the High Court at Auckland this morning counsel for Mr Ryan and Mr Sutherland argued some charges against those two should be dropped because the pair were not directors when the August 2006 prospectus was issued.

Mr Sutherland was appointed a director on November 30, 2006 and Mr Ryan joined the board on December 19 that year.

Their lawyer Anne Callinan said directors signing prospectus extension certificates and amendments carried less weight than signing the original document.

While those documents still had to be true, it was more of an administrative type procedure.

“These issues of directors coming and going raise difficult issues that haven’t been entirely grappled with in the legislation.”

Crown prosecutor Brian Dickie said the issue was the “absolute problem” with New Zealand’s secured debt market.

“You cannot extend a prospectus without actually believing it’s true every day. It is not just a piece of house keeping.”

“An extension is probably more significant than the original because time has elapsed.”

Justice Tim Brewer has reserved his decision on the applications.

The trial is set down for 16 days beginning April 16 next year.

The Serious Fraud Office is bringing a separate case against Mr Nicholls, Mr Douglas and Mr Tallentire and has laid 11 charges relating to $28 million worth of transactions between 2004 and 2006.