Prince and Partners admits failings as trustee, reaches $4.5M settlement with FMA

The FMA says Prince and Partners failed to carry out its functions as a trustee for Viaduct Capital.

The Financial Markets Authority has reached a $4.5 million settlement with Prince and Partners Trustee Co after the company admitted a series of failings in its role as trustee of lender Viaduct Capital.

Prince and Partners was the trustee for finance company Viaduct Capital, which collapsed in July 2010 owing 110 investors some $7.8m. The civil proceedings against Prince and Partners were brought by the FMA under section 34 of the Financial Markets Authority Act in 2014, when it opted to exercise the rights of action of investors not covered by the retail deposit Crown guarantee and the New Zealand Treasury.

The settlement has been approved by the High Court, a condition for proceedings brought using these powers, the FMA said.

The basis of the FMA's case was that Prince failed to carry out its functions with the care, diligence and skill expected of a reasonably competent and prudent trustee, the FMA said in a statement.

"The trustee's role was to protect the interests of investors and Prince was supposed to act as an independent watchdog over Viaduct. It failed to do so, despite obvious concerns with the proposed acquisition of Viaduct, and the red flags raised by PwC and the withdrawal of the Crown Guarantee," said Karen Chang, FMA's head of enforcement.

According to the FMA, Prince and Partners accepted that when presented with information on the proposed acquisition of Priority Finance (Viaduct's former name) in February 2009, it did not exercise the level of professional scepticism required in the circumstances.

The trustee accepted it should have made a number of inquiries, in particular into the relationship between the now deceased Nick Wevers, Paul Bublitz and Hunter Capital. It should also have taken independent legal and accounting advice on possible breaches of the trust deed. The firm also accepted the acquisition transaction was not in the best interests of investors, the FMA said.

The firm also admitted that PwC reports commissioned by the Treasury and the subsequent withdrawal of the Crown guarantee indicated possible breaches of Viaduct's Trust deed and potential liquidity issues, and that by failing to investigate and adequately monitor the lender it did not protect the interests of investors, the FMA said.