NZF Money: NZF Money v. O'Connor

A court-ordered freeze imposed on finance company NZF Money Ltd has been extended to protect investors.  But NZF Money is still allowed to continue payments for legal expenses and ordinary business expenses.  The freeze was first imposed in April 2012 when receivers indicated they are taking legal action following allegations that company assets were sold at an undervalue, reducing assets available for investors.  This litigation is still pending.

NZF Money went into receivership in July 2011, after management announcements that company liabilities exceeded assets by some four million dollars.  At the date of receivership, NZF Money owed retail investors about $16.4 million.  Provisional estimates indicate a return of between 25 cents and 42 cents in the dollar.

The receivers allege funds available to repay investors were dissipated when assets were shuffled between companies in the group by the directors in October 2010.  At issue are a bundle of mortgages transferred from a NZF Money subsidiary to NZF Money’s holding company.  The subsidiary was paid $1000 dollars for the assets transferred.  Eleven months later, the holding company sold on these same assets for just over three million dollars.  The receivers argue this three million dollars rightly belongs in the NZF Money subsidiary where it can be used to repay investors.  NZF Money directors are arguing that the deal was a legitimate business transaction designed to package up company assets for an onward sale which benefitted all companies in the group, including NZF Money.

NZF Money Ltd v. O’Connor – High Court (27.04.12)

(12.009)

Bridgecorp: R. v. Petricevic

Rodney Michael Petricevic has been sentenced to six and half years jail for making false statements to Bridgecorp investors.  The High Court did not accept protestations that he was unaware of severe liquidity problems until just before Bridgecorp went into receivership. 

Bridgecorp used money from public investors to finance property developments.  About 14,500 investors were left out of pocket when in July 2007 Bridgecorp went first into receivership and then quickly into liquidation.  Investors are owed some $459 million.  Those holding secured debentures can expect to recover less than ten cents in the dollar.  Holders of capital notes (about $29 million) or redeemable preference shares ($30 million) will not recover anything.

Some investors lost very heavily.  The court was told one 69 year old retired professional man had placed nearly two million dollars with the finance company.  He has been forced back into working long hours and his wife suffered a nervous breakdown following their loss.  Another investor, a retired couple in their seventies, lost their retirement capital, totalling $250,000.

Central to the prosecution was an allegation of untrue statements in the prospectus that Bridgecorp had never missed any interest payments to investors or returns of principal on maturity.  Statements highlighting excellent liquidity could be expected to give comfort to intending investors in a finance company.

Mr Petricevic told the court he was completely unaware of any late payments until just weeks prior to receivership.  His evidence was not believed.  Witnesses told of Mr Petricevic being present at meetings months before receivership when the problem of missed payments was discussed and another occasion when strategies to hoodwink investors were canvassed, including manufactured excuses about “computer glitches” to justify delays.  By April 2007, Bridgecorp staff were refusing to answer the phones and be party to lies told to investors.

The court was told that Mr Petricevic himself was providing short-term bridging finance to Bridgecorp through April and May 2007 to meet company payments.  Amounts ranging from $500,000 to $100,000 were advanced, being repaid within a few days on each occasion.

In general terms, Bridgecorp directors had failed to properly disclose its deteriorating trading position in offer documents available to the public: impaired loans and non-performing assets had increased; liquidity had worsened since June 2006.  And despite its stated policy, Bridgecorp did not hold a specific reserve in bank deposits to meet investor maturities.

Mr Petricevic was managing director of Bridgecorp and described himself as having thirty years experience in the finance industry.

R. v. Petricevic – High Court (5.04.12 & 26.04.12)

(12.008)

Company: Stilwell v. Ice Group

Minority shareholders in a closely-held company won the battle but lost the war in their attempt to gain a share of business profits generated by a large Defence Force contract after they dropped out of the company.  A contract to lay data cabling was picked up by the company while on-again off-again negotiations to buy out the minority shareholders drifted on.

Maurice George Stilwell and Noel Busschau Swan claimed they were entitled to between $400,000 and $600,000 as their half share in a company called Ice Group (NZ) Ltd.  The Court of Appeal ruled that they had been wronged but the effect of the court judgement is that they will get little if any after payment of their costs.

The court was told that Ice Group was established in 2001 to act as the New Zealand representative of an Australian electronics supplier.  The Australian supplier went bust two years later.  Ice Group was restructured leaving a Mr Thompson with a 50 per cent interest and Messrs Stilwell and Swan holding the other 50 per cent.  Ice Group specialised in commercial installations: CCTV systems for shops and satellite receivers for apartment blocks.  Sales were slow.  By September 2004, both Mr Stilwell and Mr Swan wanted out of the company.

Evidence was given that no firm deal was struck between Mr Thompson and the two minority shareholders about a buy-out figure.  Both sides thought about $5000 each was an appropriate figure with payment to be spread over ten months.  Mr Stilwell was left “to do the calculations”.   Nothing happened.

Then in 2006, Ice Group (through Mr Thompson’s connections) picked up a large Defence Force cabling contract.  By this time, Messrs Stilwell and Swan were still shareholders but had no continuing involvement in the company.  Mr Thompson ran the company as if he were the sole owner.

The Court of Appeal ruled that Mr Thompson’s actions in ignoring his other shareholders and running the company as if it were his own amounted to “minority oppression” in breach of the Companies Act.  In these cases, the court usually orders that the majority shareholder buy out the minority.

Messrs Stilwell and Swan argued they should be bought out with their shares valued as at the date of the trial – which would include profits from the Defence Force contract in the share valuation.  The Court of Appeal ruled that the appropriate valuation date was March 2005 – before the Defence Force contract and being balance date following the minority shareholders decision to leave the company.  This figure could be as low as $5000 each.  There was evidence that Mr Stilwell still personally owed the company $12,000 on his shareholder current account.

Stilwell v. Ice Group – Court of Appeal (4.04.12)

(12.010)