CBL class action claim includes insider trading allegations

Peter Harris, former managing director of financial risk insurer CBL Corporation. Photo/Dean Purcell

CBL shareholders taking a class action against the former directors of the failed insurance company say they have filed a statement of claim in the Wellington High Court outlining serious allegations including breaches of continuous disclosure and insider trading.

The shareholders, including the largest institutional investor Harbour Asset Management and Australia-based Argo Investments, are seeking compensation for significant financial losses suffered as a result of the company's collapse last year.

The suit is being backed by New Zealand-based litigation funder LPF Group and is competing with another separate class action funded by ASX-listed IMF Bentham.

Harbour Asset Management director Andrew Bascand, chair of CBL class action claim committee, said the statement of claim clearly outlines the allegations against CBL and the former directors.

"The claim alleges the directors of CBL are responsible for misleading statements in the IPO documents that, at the time the company listed on the NZX and ASX, it had adequate financial reserves to meet its insurance obligations. The claim also alleges that directors are responsible for the company failing to update the market in the period after the IPO with material information about CBL's financial position."

"The insider trading allegations in the statement of claim allege that directors Peter Harris and Alistair Hutchinson, through companies controlled by them, sold shares in CBL while they were in possession of material information relating to CBL that they knew was not available to the market generally."

CBL had a market value of $747 million when its shares were suspended from trading on NZX and ASX in February 2018.

The specialty insurance firm listed in 2015 after raising $125.3m from a float with 80.9 million new shares sold at $1.55 each while Harris and Hutchison sold $35.3m of their existing shares into the offer.

In April 2017 Harris and Hutchison sold a further $16.3m and $17.6m of shares at $3.26 a share.

The shares were valued at $3.17 when trading on NZX was suspended and are now deemed worthless as administrators and liquidators pick through the debris.

Bascand said shareholders globally lost hundreds of millions of dollars when CBL collapsed. "The directors must be held to account for their actions and shareholders compensated for their losses."

"We believe legal action is the only way investors in CBL can get any money back," he said.

Shareholders who acquired CBL shares in the IPO or subsequently and either sold them at a loss or still held them when the company failed in 2018 are eligible to join the claim.

In a statement sent to the Herald, Harris described the allegations as "a cheap shot" by a NZ based litigation funder "designed to legitimise an action and garner support ahead of a competing litigation funder.

"The fact is that these allegations are just that, - allegations," Harris said.

"The IPO was an incredibly robust process, with many professional firms and several government regulators involved. If the proposed class action gets to court, it will be a good opportunity to examine all parties involved, on oath, rather than the recent narrowly defined RBNZ whitewash review which interviewed no-one other than RBNZ employees to compile its report, and certainly not me."

In February 2018, it was revealed the Reserve Bank had been questioning CBLs solvency for some time, certainly since July 2017, but that it had been bound by the central bank's confidentiality order from telling the market any earlier.