NZX declines temporary waiver over Diligent's Huljich resignation rules breach

A company's breach of listing rules brought about by Auckland businessman Peter Huljich's resignation as director has been described as a "non-issue".

Diligent Board Member Services has only had two members of its audit committee, rather than the three required by listing rules, since Huljich's resignation as director a year ago.

In February - 10 months after Huljich's resignation from Diligent - the NZX Market Supervision raised questions about the audit committee's make-up with Diligent - the New York-based, NZX-listed maker of online reporting tools for board members. 

Diligent then applied for a temporary waiver to allow the situation to continue until June 30.

NZXMS declined the application this week.

In its decision, it said the rule was important to the integrity of the market "as it ensures that issuers maintain an appropriately comprised audit committee and thereby maintain a robust audit process".

"On balance, and due to the fact that DIL has been in breach of rule 3.6.2(b) for a period of approximately 10 months, the breach cannot be described as minor and NZXMS does not consider it appropriate to grant DIL a temporary waiver," the decision said.

"NZXMS reminds all issuers of the importance of complying with thecorporate governance provisions of the rules and the need to promptly self-report any breaches of the rules to NZXMS if it comes to an issuer's attention that it is currently in breach of the rules."

Non-issue

However, Diligent director Mark Russell - who forms the audit committee with fellow New Zealand director Rick Bettle - told NBR Online the decision is a "non-issue".

He says the situation was "already in hand", and at the company's AGM in two weeks, a highly qualified US-based director, Joseph Carrabino, has been nominated to join the board.

"Diligent understands the need to comply with the listing rules but we don't see this as a major issue," Mr Russell says.

"There's a breach of the rules, we're aware of that, but we don't consider that it's been a major breach."

Mr Russell, a senior commercial partner in law firm Buddle Findlay, is up for re-election at the April 17 meeting.

"[The waiver application] was just done out of an abundance of caution."

Mr Russell says it took a long time to replace Mr Huljich because the company wanted to find "the right sort of person".

He says the company was in a stronger position to attract an independent director because it had come into profit in the third quarter of last year.

A New York-based audit firm, which carried out an external audit, has confirmed to the NZX that the audit committee has functioned well and professionally with two members, he says.

Diligent's shares (NZX: DIL) closed at $3.30 yesterday, a 70% lift in price this year.

Diligent produced its second successive quarterly operating profit in the December quarter, with annual sales surging 116%.

Last September, Huljich pleaded guilty to misleading investors in his KiwiSaver scheme.