Nathans auditor's bid could derail receiver's $66m claim

Former Nathans Finance director Mervyn Doolan was one of the company's four convicted directors. Photo / Dean Purcell.

A bid by Nathans Finance's former auditor could derail a $66 million claim brought by the failed firm's receiver.

Nathans Finance collapsed in August 2007, owing 7000 investors about $174 million.

Its former directors - Mervyn Doolan, John Hotchin, Kenneth (Roger) Moses and Donald Young - were convicted this year on Securities Act charges relating to untrue statements made in the company's offer documents.

Moses and Doolan were sentenced to more than two years' jail while Young got nine months' home detention. Hotchin, who made an early guilty plea and then testified against his former colleagues, received 11 months' home detention.

PricewaterhouseCoopers receiver Colin McCloy is attempting to recover investor losses from the directors and the firm's auditor, Staples Rodway.

Staples Rodway's Christopher Hughes, who worked with Nathans, pleaded guilty last year to charges brought by the Institute of Chartered Accountants relating to his treatment of the failed finance firm's statements.

McCloy's counsel, Murray Tingey, argued yesterday that if the auditor had performed its duty, receivers would have been brought in earlier and more money would have been left for investors.

He said the auditor failed to properly assess the recoverability of related-party loans Nathans made to VTL Group and subsidiaries.

No date for the trial has been set and lawyers for both groups appeared in the High Court at Auckland yesterday to hear an application for security of costs from the defendants.

The mechanism is to ensure that if McCloy is unsuccessful in his claim, then there are funds set aside to pay the defendants' court costs.

The application for up to $890,000 security was brought by Staples Rodway after Doolan's counsel withdrew.

But Tingey said only $540,000 was left in Nathans' accounts, which was needed for the receiver's own legal fees. And he said if an award of security was made, the $66 million claim against the auditor would have to be dropped.

Many of Nathans 7000 out-of-pocket investors were elderly and it was not feasible for them to put forward funds for security, he said.

But Staples Rodway counsel Philippa Fee said some of $2.5 million paid to investors in December 2009 should have been left aside for security, especially as the receiver indicated a civil claim might be brought. Justice Geoffrey Venning has reserved his decision on the security for costs.