Securities: McCollum v. Thompson

Ticking the wrong box on a contract mortgaging a dairy herd cost lenders over $200,000 for conversion.  Choosing to take security over only identified branded stock precluded the lenders from seizing later additions to the herd.

Waikato sharemilkers, a Mr Thompson and Ms Macbeth, were bailed out when they defaulted on a $260,000 bank loan.  Three Helensville farmers refinanced the sharemilkers’ debt, paying off the bank and taking a new mortgage security over the herd.  Security was taken over some 330 head of stock, identified by number and tag.  Standard form mortgage agreements give the option of also taking security over “after acquired” stock.  This option was not selected.

When the sharemilkers later defaulted on their refinanced loan, they challenged the lenders’ actions in taking all stock found on the farmed property and on a run-off near Raglan.  Stock born or otherwise acquired after the mortgage security was signed included some 40 heifers and six bulls.  In the High Court, Justice Lang ruled the lenders had no authority to seize this after-acquired stock.  They were liable for damages in conversion.  The value of the converted stock was $77,650.  The sharemilkers were also entitled to some $161,000 for lost milk production which would have been obtained from the animals wrongly taken.  This total of some $238,600 was well in excess of the $26,600 Justice Lang ruled was still owing to the lenders as a shortfall on the sale of mortgaged stock validly seized in satisfaction of the debt.  The lenders were named as Allan Roy McCollum, Nancy Margaret McCollum and Terence Neil Walker.

The sum of $26,600 still owed on the mortgage was determined by Justice Lang  after making allowance for two items.  First, the stock seized was purchased personally by the lenders at a price which Justice Lang ruled was below the best price reasonably obtainable.  When valued, the herd was incorrectly assumed not to be on a national database, when it was.  Secondly, the lenders were required to give credit for milk production between the date the herd was trucked to their farm and the date the Waikato sharemilkers were paid for the stock purchased.        

McCollum v. Thompson – High Court (28.01.16)

16.029

Financial Statements: Schroeder v. Financial Markets Authority

Convictions of two Apple Fields’ directors for failing to file audited financial statements have been upheld by the High Court.  Fines of $30,000 stand against each of Mark Schroeder and Justin Prain.

The two directors argued failing to file was beyond their control.  The accounts could not be signed off without consolidation of information from a “deemed” subsidiary and management of this subsidiary refused to provide the required information.  The High Court ruled they had not taken all reasonable and proper steps to get Apple Fields’ accounts completed.  They had not taken any advice on how to overcome the issue, using the problem as an excuse not to complete financial statements that were likely to get a “going concern” qualification from an auditor.

Apple Fields started life in the 1980s as an apple grower and exporter.  By the late 1990s it was a property developer.  Problems arose with a Yaldhurst Road subdivision in Christchurch owned by Noble Investments Ltd.  Apple Fields contracted to manage the development, with an entitlement to share in final profits.   Mr Gordon Stewart was then a director and shareholder of both companies.  The relationship between Noble and Apple Fields was such that Noble was considered a “deemed” subsidiary of Apple Fields and was required to be consolidated into Apple Fields’ financial statements. Evidence was given that the two jont venture partners fell out: Apple Fields became tied up in litigation against owners of adjoining land, caveats were lodged against the Yaldhurst subdivision and this stymied the joint venture’s ability to obtain finance.  Mr Stewart flatly refused Apple Fields’ auditors any access to Noble Investments’ financial records, recording his frustration in one email that Noble “has now completely run out of money” and that any audit of Noble was a “fairly low priority”.

Mr Schroeder and Mr Prain were convicted as directors of Apple Fields for failing to file on time audited financial statements for the 2011, 2012 and 2013 years.

Schroeder v. Financial Markets Authority – High Court (11.01.16)

16.028