Former Hanover director Mark Hotchin has fought to have Guardian Trust included in the FMA's civil case against him and five others associated with the finance group. Photo / Brett Phibbs
Former Hanover director Mark Hotchin has fought to have Guardian Trust included in the FMA's civil case against him and five others associated with the finance group. Photo / Brett Phibbs
FMA’s $18m settlement for investors leaves public none the wiser, writes Hamish Fletcher.
The Financial Markets Authority's $18 million Hanover settlement leaves the public none the wiser on whether the six defendants breached their disclosure obligations or not.
The regulator, in the settlement agreement, considers it likely the defendants did. The defendants, unsurprisingly, consider it likely a court would accept each of them did not.
The settlement announced yesterday changes nothing in that regard and the position remains the same as before the deal was signed.
What has changed is that up to 5500 investors will share an $18 million payout.
These investors are those who put money into Hanover Finance, United Finance, and Hanover Capital between December 2007 and July 2008.
About 16,000 people with investments totalling more than $500 million lost most of their money after the failure of Hanover and related companies, and the sale of assets to Allied Farmers.
The level of payout for the eligible investors is expected to be between 5c and 20c in the dollar, depending on what Hanover vehicle they were with.
The $18 million payment is part of a deal that settles the FMA's claim against Mark Hotchin, Eric Watson, Greg Muir, Bruce Gordon, Sir Tipene O'Regan and Dennis Broit.
Former Hanover director Mark Hotchin has fought to have Guardian Trust included in the FMA's civil case against him and five others associated with the finance group. Photo / Brett Phibbs
Watson, a director of Hanover Group but not of the companies that accepted investor funds, was not required to contribute to the $18 million payment like the five others in the deal. The FMA would not comment on why this was.
The FMA's claim alleged certain Hanover offer documents issued over the relevant period contained untrue statements about the financial position of the companies.
Former Hanover director Mark Hotchin has fought to have Guardian Trust included in the FMA's civil case against him and five others associated with the finance group. Photo / Brett Phibbs
Former Hanover director Mark Hotchin has fought to have Guardian Trust included in the FMA's civil case against him and five others associated with the finance group. Photo / Brett Phibbs
FMA chief executive Rob Everett said yesterday that the deal achieved the most for eligible investors in the shortest possible time.
The regulator's primary focus was getting redress for investors, he said.
"The alternative route of coming to trial would have taken two or more years before any resolution ... $18 million to be paid to investors now is a better outcome."
He said it was entirely possible that any court judgment the FMA obtained would have been for less.
Former Hanover director Mark Hotchin has fought to have Guardian Trust included in the FMA's civil case against him and five others associated with the finance group. Photo / Brett Phibbs
Former Hanover director Mark Hotchin has fought to have Guardian Trust included in the FMA's civil case against him and five others associated with the finance group. Photo / Brett Phibbs
Asked whether he thought it was appropriate to settle given the serious allegations involved and the fact a receiver or liquidator had not investigated the companies and the lead-up to their moratorium in 2008, Everett said: "The case we took in relation to disclosure in a specific period was never going to be a proxy for the overall Hanover situation. We didn't have the remit or the evidence that would have enabled us to open up a much broader case so by its nature these proceedings were only limited to a subset of the investors and only a subset of the issues that attach to Hanover ... it was never going to cover the fuller picture."
An admission of liability was not going to come from the defendants as part of a settlement process, Everett said. "We're comfortable this was the best deal we could get."
Hotchin, Gordon, Muir and O'Regan also said yesterday that the settlement was the best outcome for investors.
"We agree with the FMA that this outcome for investors [and taxpayers] is without doubt far better than any likely result after trial in future years," the directors said.
"All directors at all times believed on reasonable grounds that the statements in the prospectuses were true. We do not believe the FMA would have succeeded at trial."
The FMA's investigation and associated action has cost taxpayers an estimated $3.5 million. On top of this around 10,000 hours of FMA staff time was spent on the case and on the asset freeze proceedings against Hotchin and entities associated with him. Those remaining asset freezing orders were lifted as a result of the settlement.
One issue still to play out from separate litigation is whether Hanover trustee Guardian Trust will be liable in the case.
Hotchin in March made a Supreme Court bid to have it included in the FMA's civil case. If Hotchin's appeal against Guardian Trust is successful, he and the other directors would want to pursue a claim that it should contribute to whatever they paid in the settlement, his QC Nathan Gedye said yesterday.
1. Who paid what in the $18 million settlement? 2. Why was Hanover Group Limited director Dennis Broit required to contribute to the $18 million settlement but fellow board member Eric Watson wasn't? 3. How much was released to Mark Hotchin or his family's interests when the Financial Markets Authority's asset freezing orders was lifted? 4. Does the $3.5 million cost of the investigation, court claim, and asset freezing action make this the most expensive finance company case to date?
