Two
directors of finance companies Dominion Finance and North South received
sentences of home detention after pleading guilty to charges of issuing a false
prospectus and false advertisement: nine months home detention for Ann Kathleen
Butler and twelve months home detention for Robert Barry Whale.
At issue were separate
prospectuses issued by each company in 2007 (inviting deposits in each finance
company) and a follow up letter to investors the following year (which was
untrue in that it mis-stated the level of reinvestment by investors and
misleading in its description of company liquidity at a time when major
shareholders had been forced to inject $300,000 working capital to bridge a liquidity
crisis).
Both companies are now
insolvent. To date, Dominion Finance
investors have recovered some twelve cents in the dollar, North South investors
65 cents.
Offer documents issued
to potential investors in 2007 and 2008 were described as being misleading. Dominion Finance offer documents failed to
disclose related party lending of some $25 million, did not disclose the
company’s failure to comply with its own internal lending standards and did not
clearly identify the level of loan impairments. For North South, there was a similar failure
to disclose both related party lending and a material deterioration in the
company’s overall financial position.
Neither director
personally prepared the offer documents but Justice Dobson said securities
legislation required them to check the accuracy of the information provided
before it was released to the public.
Their failure to do this job properly amounted to gross negligence. Deliberate dishonesty does not have to be
proved.
In mitigation, Robert
Barry Whale provided numerous testimonials as to his previous good character
and his being a valuable member of the Auckland legal community and wider city
community. Justice Dobson said he was
troubled by one clear instance of apparent dishonesty where Mr Whale had lied
to company auditors about the existence of one of the related party
transactions.
Mr Whale was sentenced
to twelve months home detention together with 250 hours community work and
required to pay $75,000 reparations.
Justice Dobson said Mr Whale’s offer of $75,000 reparations appears
“underwhelming”.
Ann Kathleen Butler
said she was absent from New Zealand for two months in mid-2008 and was then not
in a position to exercise the oversight properly required of a director. She had been the companies’ chief financial
officer for some years but in 2005 stood down from her day-to-day role in
company operations, retaining an involvement as non-executive director. During 2008 she was caring for her late
husband who was then receiving treatment for cancer. She offered reparations of $300,000 but said
her future financial position was dependent upon trustees of a family trust
making provision for her. The court was
told that she and her late husband had previously transferred assets totalling
some $10.5 million into family trusts.
Mrs Butler was
sentenced to nine months home detention (with provision for visits to her
elderly mother), 80 hours community work and payment of $300,000 reparations.
R.
v. Butler & Whale – High Court (14.06.13)
13.014