Some
twenty-one investors in a personalised investment fund managed by South
Canterbury Finance director Allan Hubbard have been overpaid about $1.6 million
in an interim distribution made by government appointed receivers. They will be required to make repayment after
a High Court order on how the fund should be wound up.
In June 2010,
government appointed statutory managers to numerous Hubbard investment
vehicles. The Timaru-based chartered
accountant operated a mix of finance companies and investment vehicles. Statutory managers have spent considerable
time and energy unravelling the investment fund’s finances, not helped by Mr
Hubbard’s idiosyncratic manner of business relying on paper based records and
making frequent post-balance date adjustments to reflect his assessment of
where specific revenue should be placed.
Mr Hubbard died after
a road accident in 2011.
The High Court was
asked to rule on distributions between some 300 investors claiming an interest
in Hubbard Churcher Trust Management Ltd. Values for this share-based investment fund
vary daily since it invested primarily in listed shares with some further
investments in venture capital and private equity funds. At the time of the court hearing $35.9
million dollars remained to be distributed with an interim distribution of nine
million dollars having been made earlier.
Evidence was given
that Mr Hubbard established the fund at some unknown date in the late 1990s,
offering a bespoke personalised investment service to clients. Most clients gave no specific investment
instructions, relying on Mr Hubbard’s financial acumen to make investment
decisions on their behalf. Clients paid money in through one-off payments
or made regular payments by bank automatic payment.
While assets were
initially registered in the name of specific clients, Mr Hubbard later shifted
all assets into one umbrella holding company and kept secondary records
identifying each client’s individual portfolio.
Each year he provided individual investors with a statement of their
current holdings and previous year’s income.
The court was told Mr
Hubbard generally bought investments in bulk and retrospectively allocated
investments to specific investors.
The existence of this
investment fund did not come to the statutory managers’ attention until some
months after their investigations started into South Canterbury. By then, the investment fund paper trail was
becoming even more confused.
The High Court was
asked to rule on how the fund should be wound up, given that previously asset
allocation was at the sole whim of the late Mr Hubbard based on his perception
of each individual’s acceptance of risk.
Reconciliations by the statutory managers found the total value of
investments as reported to investors did not match the value of the assets held
by the fund and that the individual portfolios as reported to some investors
probably did not represent their individual holdings. What purported to be a bespoke personalised service
at times operated more like a pooled investment fund.
Justice Chisholm said
a court-ordered distribution involved finding the “least unfair result for the
investors” bearing in mind that no method of distribution would result in “perfect
justice for all”. Further accounting
work would be required, he said.
His Honour ruled that
the statutory managers were to use the 2000 year as their starting point,
paying back investors their capital invested as at that date. Additions to the fund after that year from
capital gains and revenue are to be pooled with investors paid pro rata after
an allowance for interest to reflect the length of time individual investors
had an interest in the fund.
Preliminary
calculations before the court indicate that use of this method means that some
80 investors have already received their full entitlements, or have been
overpaid, leaving about 220 investors to share in the pooled “surplus”.
Re
Hubbard Churcher Trust Management –High Court (1.6.12)
12.011