28 August 2017
MR No. 2017-38
Prince and Partners Trustee Company (Prince) has admitted a series of failings in its role as trustee of Viaduct Capital Limited (Viaduct), a finance company that went into receivership in 2010. The civil proceedings brought by the FMA against Prince have been settled for $4.5 million.
It is the first time the FMA has brought a case under section 34 of the Financial Markets Authority Act 2011. These powers enable the FMA to exercise the rights of action of investors, in this case, the Treasury and investors who were not covered by the Retail Deposit Crown Guarantee Scheme. The settlement has been approved by the High Court, a condition for proceedings brought using these powers.
The basis of the FMA’s case was that Prince failed to carry out its functions with the care, diligence and skill expected of a reasonably competent and prudent trustee.
Karen Chang, FMA’s Head of Enforcement, said “The trustee’s role was to protect the interests of investors and Prince was supposed to act as an independent watchdog over Viaduct. It failed to do so, despite obvious concerns with the proposed acquisition of Viaduct, and the red flags raised by PwC and the withdrawal of the Crown Guarantee.
Supervisors under the new regime have an important role to play in protecting investors and promoting confidence in New Zealand’s financial markets. By bringing this claim and receiving these admissions, we’ve highlighted the type of misconduct that is unacceptable from a licensed supervisor.”
Prince has accepted that when presented with information on the proposed acquisition of Priority Finance (Viaduct’s former name) in February 2009, it did not exercise the level of professional scepticism required in the circumstances. Prince accepts it should have made a number of inquiries, in particular into the relationship between Nick Wevers, Paul Bublitz and Hunter Capital. It should also have taken independent legal and accounting advice on possible breaches of the Trust Deed. Prince accepts the acquisition transaction was not in the best interests of investors.
Prince has admitted that PwC reports, commissioned by the Treasury, and the subsequent withdrawal of the Crown Guarantee, indicated possible breaches of Viaduct’s Trust deed. The PwC reports also indicated potential liquidity issues that affected Viaduct’s ability to meet future debenture repayments. Prince has admitted that by failing to investigate these matters and adequately monitor Viaduct’s financial position, it did not protect the interests of investors.
The FMA is satisfied that its regulatory objectives in bringing this claim have been achieved. These were to:
These objectives contribute to the FMA’s purpose of maintaining and promoting confidence in fair, efficient and transparent financial markets.
Viaduct owed secured depositors a total of $7.8 million when it went into receivership in May 2010. $7.3 million was covered by the Crown Guarantee and repaid to investors by Treasury. $515,000 is owed to investors who invested in Viaduct after the Crown Guarantee was withdrawn.
The settlement agreement is here
The judgment is here
Media Manager, FMA
021 220 6770
The matters in this settlement relate to trustees of regulated securities under the Securities Act (1978). The functions previously carried out by trustees of debt securities are now performed by licensed supervisors. There are now more rigorous obligations for licensed supervisors under the Financial Markets Supervisors Act (2011) and the Financial Markets Conduct Act (2013).
Criminal proceedings remain before the court against three directors of Viaduct Capital and Mutual Finance. The FMA cannot comment on these proceedings.