Nelson-based company director Michael Millar was ordered to pay $2.4 million damages for milking excess fees out of First NZ Properties; failing to disclose conflicts of interest as director of both his property management company Investment Services and First NZ.
In the High Court, Justice Gwyn ruled Mr Millar breached Companies Act director duties; failing to disclose excess management fees charged First NZ and taking a share of capital gain on property sales without authority.
Mr Millar kept a tight rein on First NZ’s decision-making by having himself, family members, and close business associates elected to the First NZ board.
At the same time, his company Investment Services Ltd was managing First NZ properties.
Mr Millar claimed he did nothing wrong. Payments received by Investment Services were authorised by an earlier First NZ management contract which had expired, but ‘ran on’ covering subsequent purchases of other properties, he said.
Evidence was given of Investment Services acquiring in the 1990s management contracts for several commercial properties. Its biggest deal was management of three Auckland Foodtown sites owned by First NZ.
In dispute was fees taken for management of properties subsequently purchased by First NZ.
Justice Gwyn ruled Investment Services’ initial management contract was specific to the named Foodtown sites. Agreed terms did not roll over to management of other commercial properties later purchased by First NZ.
The court was told of Investment Services later implementing a policy of subcontracting to others management of specific properties, charging this cost to First NZ, and then continuing to pocket for itself a full management fee.
When later challenged, Mr Millar claimed the full fee charged was for ‘investment advice’ which included supervision of sub-contracted management companies.
Mr Millar’s failure as First NZ director to disclose this policy change to First NZ shareholders and to get their approval was a breach of Companies Act director’s duties, Justice Gwyn ruled. There was a clear conflict of interest with Mr Millar in control of both Investment Services and First NZ.
Investment Services right to a slice of the capital gain on sale of First NZ properties was agreed for sale of the original three Foodtown sites, but not for subsequent sales.
Fudging First NZ accounting disclosures to bury Investment Services share of capital gains extracted on these further sales was a serious non-disclosure, in breach of director’s duties.
The court was told sale realisations were reported in First NZ’s financial statements on a net proceeds basis, hiding the capital gains taken by Investment Services.
In one instance there was no sale at all. Investment Services counted as a ‘sale’ the proceeds of an insurance claim made on a First NZ commercial building in Christchurch, demolished after an earthquake.
Separately, Mr Millar’s son-in-law Paul Mephan was ordered to refund First NZ $450,000. Mr Mephan was a First NZ director at a time when Investment Services was wrongly paid $450,000 as its supposed share of the capital gain on sale of a First NZ property in Auckland.
Adding to the woes of First NZ shareholders, they were told in 2018 of a $2.03 million fraud perpetrated by former director Neil Barnes.
By then, Mr Barnes had fled to the United States.
Justice Gwyn was told $966,000 has been recovered from Mr Barnes to date.
First NZ Properties Ltd v. Millar – High Court (16.05.24)
24.229