KEY POINTS:
More prosecutions over the auditing standards in failed finance companies are likely following the successful case against two chartered accountants who signed off the books for the first firm to hit the wall.
National Finance 2000 - which lent money to used car dealers and individuals seeking car loans - was the first of the recent spate of finance companies to go bust. The Business Herald understands a further two cases are working their way through the Institute of Chartered Accountants' disciplinary process.
Yesterday Bruce Arnold Mincham and Michael Derek Wood, directors at Queen St accountants O'Halloran HMT, were censured and ordered to pay costs of $133,347.18 to the institute over their audit work of the finance company.
The pair had pleaded guilty to breaching the Institute of Chartered Accountants' code of ethics. Charges of misconduct in a professional capacity and conduct unbecoming an accountant were dropped before the hearing began yesterday in Auckland.
In particular, the pair had failed to properly check on National Finance's assertion that advances to motor vehicle dealers were secured over the trading assets of the companies and by personal guarantees, when this was not the case.
They had also failed to report in writing to the Covenant Trustee Company of breaches to the trust deed.
The institute's disciplinary tribunal yesterday took just 20 minutes to decide on penalties for what had been set down as a three day hearing.
Mincham and Wood could have faced being struck off or suspended from practice, but chairman Jim Hoare said the tribunal noted the pair's unblemished records, their guilty plea and their co-operation with the institute's professional conduct committee investigation.
He stressed that the tribunal's findings do not make any connection between the standard of auditing and the insolvency of National Finance.
Michael Reed, QC, who appeared on behalf of the institute, said that the professional conduct committee accepted that the pair had no intention to mislead anyone.
Both sides were in agreement on a punishment of censure and repayment of costs.
Brian Keene QC, who represented the two men, said both men have had long unblemished professional records - Mincham for 41 years and Wood for 15.
On O'Halloran HMT's website, Mincham is described as an audit specialist.
He joined the firm in 2001, leading its audit team after 20 years as a partner at Deloitte.
Wood, meanwhile, became a partner at O'Halloran HMT in January 2005. He joined in 2003 after nine years at Deloitte.
"It is no doubt going to impact very strongly on their future practice," said Keene.
PENALTIES
Bruce Arnold Mincham and Michael Derek Wood:
* Pleaded guilty to one charge each of breaching the Institute of Chartered Accountants' code of ethics.
* Both men have been censured - a permanent mark on their professional record.
* Each also has to pay half the $133,347.18 costs incurred by the Institute's investigation and prosecution.
CAR FINANCIER FIRST TO FALL
National Finance 2000, which collapsed in May 2006, was the first of 24 finance companies to have failed or run into trouble in little more than two years.
More than 2000 debenture bond holders were owed more than $25 million after the used car finance company and a related firm, Payless Cars, were placed in receivership when National Finance failed to meet its debt to asset ratios.
The collapse sparked fears of further finance company collapses - although most thought at the time the contagion would be limited to those lending to car buyers.
National Finance 2000 had given loans to car dealers and to customers purchasing vehicles from Payless Cars, which ran four Auckland car yards. Both were headed by Alan Ludlow, who touted for funds in television commercials even as the companies were struggling.
In October last year the company's loan book was sold to convicted fraudster and 80s high-flyer Alan Hawkins' NZAX-listed finance company Cynotech Holdings for a third of its face value - $7.7 million.
Debenture stock investors were expected to eventually recover around 45c in the dollar from their investment, but subordinated investors were unlikely to recover anything from the assets in receivership.
