Bridgecorp: Davidson v. Registrar of Companies

The High Court ruled that directors of a finance company must have some degree of financial literacy as it upheld a two and half year prohibition order made against Bridgecorp director, Auckland lawyer, Bruce Nelson Davidson, preventing him from acting as company director or charity trustee.

Described as naïve and trusting, Mr Davidson claimed he was hoodwinked by managing director Rod Petrecivic. Bridgecorp collapsed in mid-2007 owing some $486 million. Investors might expect a return of ten cents in the dollar.

Bridgecorp suffered a punishing liquidity crisis over its final twelve months, with declining investment renewals, falling gross margins and growing loan impairments.

There was evidence that senior management became selective in repaying term deposits on maturity, favouring those due to clients of investment advisers who would probably recommend reinvestment. Litigation has followed allegations that Mr Petrecevic took company resources without authority and that substantial related party lending benefited executive directors to the company’s detriment.

Securities Act charges have been commenced against all directors, including Mr Davidson, alleging Bridgecorp issued misleading prospectuses when borrowing from the public.

Mr Davidson, amongst other directors, was banned by the Registrar of Companies from acting as a director. Power to ban is an administrative power, designed to stop incompetent directors from continuing in business.

Mr Davidson challenged use of the ban against him, saying he acted honourably throughout but was misled by fellow Bridgecorp directors.

Upholding the ban, Justice Miller said Mr Davidson is a man of integrity with an admirable record of community service but had acted unwisely.

The court ruled that power to prohibit is intended to set standards of performance for company directors as well as protection of the public.

Justice Miller said Mr Davidson was unwise to rely on more financially literate directors, particularly when evidence of insolvency mounted and the unreliability of Mr Petrecivic became apparent.

Davidson v. Registrar of Companies – High Court (27.08.10)

09.10.003

Pollution: Thurston v. Manawatu-Wanganui Regional Council

Described as polluting for profit, a landowner was fined nearly $175,000 after pouring industrial waste into a local river. This after signing a lease where he agreed to accept responsibility for waste management from the property but then found that cost of disposal was exceeding the rent coming in.

The court was told the main problem concerned waste from a meat processing plant based at Longburn, near Palmerston North. The plant was leased to a Goodman Fielder subsidiary. The terms of the lease, which runs to 2035, required the landowner to bear the cost of waste removal. The landowner’s company received monthly rent of $12,300, but was having to pay between $20,000 and $30,000 per month to truck industrial waste to a treatment plant run by a local council.

Council staff became suspicious when deliveries to the treatment plant stopped. On investigation, council staff found raw waste was being dumped illegally into an old pipe leading to the Manawatu River.

At council’s insistence, the landowner has had to build a five kilometre pipeline, at a cost of some $2.6 million, to transport waste direct to the local treatment plant.

In the District Court, the landowner and his company were convicted and fined for illegal waste discharges from both the Longburn plant and a dairy farm operated by the landowner personally.

On appeal, the High Court refused to reduce the fines.

Justice Miller described the case as a clear example of polluting for profit; the landowner was criticised for the calculated nature of the offending, the attempt to evade accountability by misleading council staff and failure to respond to abatement notices.

Thurston v. Manawatu-Wanganui Regional Council – High Court (27.08.10)

09.10.001

Leaky homes: Auckland City v. McNamara

Local councils bear no responsibility for leaky homes when developers choose to use independent building certifiers rather than paying for a council inspection. This applies even where the independent certifier has failed to comply with the prescribed rules when assessing for weather tightness. A council is not obliged to check on a registered certifier’s competence.

Litigation followed the purchase of an Auckland property after purchasers, the McNamara Family Trust, found it leaked. Built in 2004, the developer contracted Approved Building Certifiers to complete certification of the property as then required by the Building Act 1991.

After repairing leaks, the Trust sought to recover its loss suing some 18 defendants for negligence, including the Council.

The Council took legal action to be struck out of the case, saying it had no liability.

The Court of Appeal agreed. It said the Building Act gave house builders a choice between the use (in whole or in part) of a private certifier or the use (in whole or in part) of the relevant local authority. Where a private certifier is chosen, a council assumes no responsibility for the work. A council merely carries out the administrative act of recording the fact that a compliance certificate has been issued.

In this case, Approved Building was listed as an approved certifier on a register maintained by the Building Industry Authority. As from December 2002 the standard applying to weather tightness was strengthened. It was alleged that Approved Building issued a compliance certificate when the building did not comply with this tougher standard.

Auckland City v. McNamara – Court of Appeal (03.08.10)

08.10.001