Lombard Finance directors can't shirk responsibility for failure, Crown says

Monday 17th October 2011 2 Comments

The directors of failed lender Lombard Finance & Investments can’t shirk their responsibility for the firm’s overexposure to property development and weak financial position, the Crown prosecutor says.

Colin Carruthers told the High Court in Wellington that a director’s duty is to direct, and that they can’t dump their responsibility on to management or other external parties, such as auditors, solicitors or independent advisers.

“The issue is this – what is the role of the director? What is it the director assumes is his duty to perform?” Carruthers said. “If the argument becomes the director could rely on management, could rely on auditors, could rely on solicitors, could rely on trustees, could rely on the Registrar of Companies, what is the director’s role in all of this?”

Directors Michael Reeves, Doug Graham, Bill Jeffries and Lawrence Bryant today pleaded not guilty to five counts relating to claims they made untrue statements in a 2007 prospectus, investment statement and advertising material.

Lombard Finance raised some $12.7 million during the period the documents were available, the court heard.

Carruthers told Judge Robert Dobson that Lombard Finance’s lack of liquidity should have been disclosed to investors, who weren’t able to make an informed decision from the amended prospectus and investment statement.

Loans needed to be severely impaired after it failed to attract the required cash flow from its five major lenders, he said.

The over-exposure to lenders who made up the majority of the loan book breached the company’s credit policy, as did repeated extensions granted on the loans when they were late.

Carruthers said the chairman, former Justice Minister Graham, faces greater consequences, as he failed to implement strong governance procedures that could have provided investors with appropriate disclosure.

Last year, the then-Securities Commission laid civil and criminal proceedings against the directors.

Lombard went into receivership on April 10, 2008, owing approximately $111 million to about 3,900 debenture holders, $10 million to 310 capital note holders, and $4 million to subordinated note holders.

It is unlikely that secured debenture holders will receive more than 24 percent of their investment back. Unsecured creditors are likely to receive nothing.

The case is continuing.

BusinessDesk.co.nz

Comments from our readers

On 18 October 2011 at 11:42 am Michael said:

The directors of Lombard should recieve the maxuimum penalties available with no right of appeal. It is unfortunate for these particular companyy directors but they must be made an example of with full media exposure in order for others to be made aware of their responsibilities to both shareholders and investors alike. For too long company directors have collected their fees and shed their reasponsibilities using the soft option of blaming others i.e. management, acoountants, auditors etc. Hang em!

On 18 October 2011 at 12:41 pm Ivan said:

Michael has said it all. All I can add to this,is that these are some of the most respectable business people in the country. What does that say about our business people in general ?