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FMA settlement with Hanover defendants provides $18 million compensation for investors

 

Media release
MR No. 2015 – 029
6 July
 2015

The Financial Markets Authority (FMA) has reached a settlement of its civil proceedings against the former directors of Hanover Finance Ltd (HFL), Hanover Capital Ltd (HCL), United Finance Ltd (UFL), together known as the Hanover finance companies, and the former directors of a parent firm, Hanover Group Ltd.  As part of the settlement, $18 million will be distributed to eligible investors who invested in the Hanover finance companies in the period from 7 December 2007 to 23 July 2008.

The directors of the Hanover finance companies (HFL, HCL and UFL) are Mark Hotchin, Gregory Muir, Tipene O'Regan, and Bruce Gordon.  The directors of Hanover Group Ltd (HGL), which the FMA alleges was a promoter of offers made by the three Hanover finance companies, were Eric Watson and Dennis Broit.

In the proceedings, the FMA claimed that prospectuses and advertisements distributed by HFL, HCL and UFL between December 2007 and July 2008 were misleading about the financial position of the companies in that period. The defendants deny liability and dispute the FMA’s claims.

FMA chief executive, Rob Everett, said the decision to reach a settlement was very carefully considered within the FMA and with its legal advisers, to determine how best to serve the interests of investors and the broader public.  The FMA believes that the terms of the settlement provide a better and earlier outcome for the relevant investors than going to court and also meet the FMA’s regulatory objectives in taking civil action.

In addition to the settlement payment, Messrs Hotchin, Muir, O’Regan and Gordon, directors of the Hanover finance companies, have given voluntary undertakings not to act as directors of a bank or non-bank deposit-taker until 1 May 2018, without the prior written approval of the FMA.  A breach of the undertakings can be enforced by the FMA through the Courts.

Mr Watson and Mr Broit, the directors of HGL, have given representations to the FMA that they do not intend, now or in the future, to act as directors of a bank or non-bank deposit-taker.

Mr Everett said, “we wanted to provide certainty and some compensation to investors in the 2007 offer.  We believe the compensation secured now is the best outcome for those investors. This payment is likely to be greater than any recovery that might have been available at the end of a trial.

“The undertakings and representations provided by the defendants meet the FMA’s regulatory objectives and hold the defendants to account. This ensures they will not be directors of bank or non-bank deposit takers for a period of time. Undertakings are used by the FMA to provide an element of protection for investors.”

Mr Everett noted that the outcome of any trial is always uncertain, that there is also the possibility of appeals, and this would postpone resolution for investors and for the public generally for several more years. “Any funds that may have been available for investors, from the defendants and their insurers, would have been largely reduced by the costs of a lengthy trial.”

The focus of the FMA’s investigation and civil proceedings was the offer made to investors in December 2007 and the related advertisements. The investors eligible for compensation are those who invested, or reinvested, in the Hanover finance companies on the basis of the information in these offer documents between 7 December 2007 and 23 July 2008, and who were not repaid in full.

The FMA Hanover case was about disclosure to investors. It highlights the importance of accurate disclosure and that investors are entitled to know the true financial position of any company where they have entrusted their money.

Mr Everett added, “While these proceedings were taken under the prevailing law at the time, the Securities Act 1978, the FMA is committed to working with issuers to drive prompt and effective disclosure and to embed the new disclosure regime under the Financial Markets Conduct Act, which came into effect in 2014.  These disclosure obligations are critical to ensuring investors can have confidence they are being fairly treated and accurately informed.”

The settlement agreement is published here.

ENDS

Media inquiries:

Andrew Park

Ph. 021 220 6770 or 09 967 12 15, Andrew.park@fma.govt.nz

Notes on the compensation distribution process:

Deloitte has been engaged to manage the allocation and distribution of the settlement payment to eligible investors. Details of the distribution process and the criteria for eligibility are available on Deloitte’s website. Deloitte will shortly write to eligible investors about the next steps in the distribution process.

Investor inquiries for Deloitte contact 0800 HAN OVE (0800 426 683) or go to www.deloitte.com/nz/hanover

Notes on the release:

  • For the purposes of the settlement, a non-bank deposit-taker is defined in section 5, Non-Bank Deposit Takers Act 2013.
  • The FMA’s asset preservation orders over the assets of Mr Hotchin have been lifted as a result of the settlement.
  • The undertakings from the finance company directors can be enforced by the FMA through the courts if any one of the directors breaches the terms of the undertakings.
  • The representations from the alleged promoters Mr Watson and Mr Broit mean that if they should act in any way against the terms of those representations the FMA can re-commence proceedings against them at any time up to 30 October 2018.