Accountants
PwC failed to block litigation funders bankrolling a $334 million negligence
claim arising from the collapse of David Henderson’s Five Mile Holdings
property development at Frankton in Queenstown.
PwC says the liquidator should be acting for unsecured creditors but any
benefits will instead be passed on to secured creditor Allied Farmers and the
litigation funders.
Liquidators of Five Mile Holdings parent
company, Property Ventures Ltd, signed up to a litigation funding agreement
with a special purpose company called SPF No.10 Ltd. The liquidators allege negligence by PwC as
auditor of Property Ventures arguing losses
for the property group would have been up to $302 million less if PwC had done
its job properly. PwC denies negligence. The court was told it was not the liquidators
who took the initiative in arranging litigation funding. This was negotiated by receivers of Property
Ventures acting on behalf of secured creditor Allied Farmers Investments. Allied
Farmers received from SPF $100,000 cash and a promise of five per cent of any
recoveries; SPF pays the costs of litigation (estimated at up to five million
dollars), keeps for itself the balance owed Allied Farmers before paying
anything left over to Property Ventures’ liquidators.
PwC challenged the funding
agreement. New Zealand law limits the
circumstances in which outsiders can barge in and get involved in someone
else’s legal claims. The Court of Appeal
ruled the funding agreement could stand.
It was not entered into for an improper reason. There was some potential benefit to Property
Ventures’ unsecured creditors, though the extent of this benefit would depend
upon the the complexities of the claim and the extent of recoveries, if any.
PwC took exception to SPF taking an assignment
of Allied Farmer’s security. This security
included rights to pursue any legal claims Property Ventures might have
including claims for alleged negligence SPF itself was looking to enforce. New Zealand law generally prohibits trading
in tort actions such as negligence. The
Court of Appeal said there were sound commercial reasons for SPF taking over
the security. It was a “defensive move” to
protect the funding agreement since David Henderson was then bidding to purchase
the same Allied Farmers security.
PriceWaterhouseCoopers
v. Walker – Court of Appeal (19.07.16)
16.113