Apple
Fields directors’ convictions for failing to file audited financial statements
were overturned on appeal. They were
powerless to demand information from a “deemed” subsidiary required for Apple
Fields’ consolidated financial statements.
Without consolidation, accounts complying with the Financial Reporting
Act could not be finalised or audited.
Mark Schroeder and Justin Prain
challenged convictions for failing to file Apple Fields’ financial statements
for the 2011, 2012 and 2013 financial years.
They had taken all reasonable and proper steps to comply, they
said. Apple Fields ran into problems
with a 254 lot residential subdivision in Yaldhurst, Christchurch. It is being developed with joint venture
partner Noble Investments Ltd. A profit
share agreement with Noble resulted in Noble becoming a “deemed” subsidiary of
Apple Fields. Noble’s management refused
point-blank to allow Apple Fields’ auditors access to financial information.
Apple Fields directors acted reasonably
by relying on professional accounting advice that consolidation was required,
the Court of Appeal ruled. They also
acted reasonably by not bothering to seek legal advice over whether Noble could
be forced to provide financial information, the Court ruled. Apple Fields had no control over Noble
management. There was no evidence of any
contractual right in joint venture documentation giving Apple Fields a right to
access Noble’s financial records.
Prain
and Schroeder v. Financial Markets Authority – Court of Appeal (30.06.16)
16.100