Business Reconstructions: Paris v. Hanover

Attempts to postpone investor meetings for the Hanover Group were sidelined when the High Court refused to intervene.   It was not for the court to pre-emptively intervene when it was within the power of investors to vote for an adjournment.

In July 2008, Hanover Finance suspended trading.  About 17,000 investors are affected.  Existing deposits were frozen and company management spent some months formulating debt restructuring proposals.  These were put to investors in early December 2008, proposing that unpaid principal be repaid in full to some (but not all) investors over a five year period.  Investor approval was required under the terms of the trust deed governing Hanover’s public borrowing.

Media commentators poured scorn on the commercial reality of Hanover’s repayment proposals.  One investor took court action to postpone the meeting of investors.  She alleged information provided to investors prior to the meeting was inadequate.

In particular, it was alleged that management had misrepresented a proposed injection of $40 million dollars into Hanover from companies associated with Hanover’s owners: the Axis property group.  This transfer was designed to provide liquidity for the promised repayments.  The complaint was that the value and liquidity of the Axis properties were unknown.

Hanover argued investors had been advised that the worth of the Axis properties had been explained to investors, telling them that worth depended on prices at later realisation, not current market values.  Justice Heath ruled that investors had been fairly informed of the position.  He did not see any benefit in requiring a delay to enforce disclosure of current market values.

He further ruled that investors had power to adjourn the meeting if there were sufficient numbers aggrieved by any perceived lack of information.  The trust deed governing investor meetings required any adjournment to be approved by 51% of those voting in person or by proxy.

Justice Heath said those at the meeting holding proxies for absentee investors were required to take care in exercising a proxy vote on any adjournment proposal.  They had to consider carefully any arguments put for or against the proposal, and to exercise their proxy vote in good faith and not for any private or personal benefit.

Paris v. Hanover – High Court (8.12.08)

12.08.003