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