Justice
Faire dismissed as “sellers regret” allegations by Diversified Investments
director Norm Stacey that fellow director Vicki Watson sold the business
too cheaply to Fisher Funds in return
for a sweetheart deal giving her a favourable employment contract with
Fisher.
Diversified Investments was forced to
sell off its managed funds and related Kiwisaver business when the Financial
Markets Authority clamped down in 2013 on Kiwisaver providers with high total
expense ratios. Diversified held about
$8.5 million under management for a little under 320 Kiwisaver members and some
150 other investors. Diversified’s small
size and investment in “funds-of-funds” created multiple layers of fees.
Market interest came from potential
buyers Elevation Capital, Craigs Investment, Fisher Funds and latterly Devon
Funds. In April 2014, Ms Watson was well
down the track in negotiating a deal with Fisher Funds when Mr Stacey
approached Devon Funds who then showed interest at price above that Fisher was
offering. The High Court was told of a
terse meeting between Ms Watson and Mr Stacey over the competing bids and the
“handshake deal” already struck with Fisher Funds. Mr Stacey then called Devon Funds, telling it
the deal was off. Diversified’s business
was sold to Fisher Funds for $318,000.
Mr Stacey subsequently alleged the
business was sold at a gross undervalue.
He claimed the market value was close to $1.1 million. He sued, alleging Ms Watson feathered her
nest at his expense, selling out cheaply because she was promised a “super
salary” in a job with Fisher Funds. As directors
of Diversified, each received an annual salary of $100,000 plus expenses. During negotiations, Fisher Funds offered Ms Watson
an annual salary of $200,000 with bonuses and the right to buy back
Diversified’s client base if she were dismissed in the next three years. Employment contract negotiations were initially
kept confidential from Mr Stacey. The
final agreement for sale and purchase signed by Mr Stacey contained Ms Watson’s
right to buyback clients. Ms Watson’s
remuneration was agreed after the purchase price was settled, Justice Faire
said. She was assuming a greater and
different responsibility at Fisher Funds than she exercised at Diversified. Evidence was given that Mr Stacey made no
enquiries about her proposed employment with Fisher Funds, though invited to do
so. Mr Stacey’s primary concern was the
terms of a restraint of trade limiting his field of work for a period after the
sale.
Ms Watson did not owe any fiduciary duty
to Mr Stacey as a fellow director or to Mr Stacey’s family trust as a
shareholder of Diversified, Justice Faire ruled. Neither could her conduct be considered
“unfairly discriminatory or unfairly prejudicial” to Mr Stacey.
Stacey
v. Watson – High Court (16.08.16)
16.130