The
chaotic state of Alan Hubbard’s investment empire was laid bare when a US
investor sued to prove her entitlement to $5.5 million. Hubbard’s accounting records were called
unorthodox and chaotic and he was described as taking a paternalistic attitude
towards his clients without consulting them.
Timaru-based
accountant Alan Hubbard had strong local support with his philanthropic
activities, but enthusiasm has waned following publicity about the loose way in
which he ran his businesses.
Government-appointed receivers took control of his business empire in
2010. Mr Hubbard died subsequently in a
road accident.
Hubbard’s business
activities had two arms: Aorangi Securities Ltd (ASL) which invested primarily
in first mortgage securities and Southbury Group Ltd (SGL) which made riskier
equity investments in what were perceived to be growth companies.
Receivers’
investigations indicate both ASL and SGL were insolvent by early 2009. They are in the process of realising all
assets. Indications are that ASL
investors will get back most of their investment; SGL investors very little.
US investor, Susan
Jenks was told that her $5.5 million was with SGL. This was a surprise. All the paperwork she held referred to her
status as an ASL investor. High Court
action followed to clarify where she stood.
The court was told
that Mrs Jenks and her husband (who has since died) met Mr Hubbard in 1987
through a mutual connection. On
Hubbard’s advice they purchased a Methven farm and made subsequent investments
in Christchurch real estate. These
investments were rationalised as Mr Jenk’s health deteriorated. The properties were sold and funds left with
Mr Hubbard for investment. In October
2009, Hubbard wrote to the Jenks advising their funds had been placed with
ASL. Subsequent letters to Mrs Jenks
stating the ongoing value of her investment made no reference to the funds
having been moved from ASL.
When receivers took
control of Hubbard’s business records they found a handwritten journal entry
transferring across to SGL Mrs Jenk’s $5.59 million investment in ASL. Justice Dobson said it was extraordinary for
a business with $160 million in assets to record the transfer of such an
investment with a barely legible handwritten journal entry. The receivers treated this accounting record
as proof that Mrs Jenks was a SGL creditor. They refused to accept attempts by
Mr Hubbard to reverse the journal entry several months after their appointment. Mr Hubbard claimed the investment had been
reversed earlier but he had not completed the paperwork at the time.
Justice Dobson ruled
that Mrs Jenks is an ASL investor. As
investment adviser to the Jenks and as their agent, Mr Hubbard had no authority
to move their funds without their informed consent. Mr Hubbard’s close association with ASL meant
the company was liable for his wrongdoing and ASL had to accept that Mrs Jenks
was still a creditor.
The court was told
that including Mrs Jenks as a creditor of ASL would reduce the payout otherwise
available to ASL creditors by about five to six per cent.
Simpson
v. Jenks – High Court (20.12.13)
14.007