Case against Nuplex directors 'key test of tougher law'

Nuplex director John Hirst. Photo / Dean Purcell

The Securities Commission's case against resin manufacturer Nuplex and some of its directors will be an important case that tests law changes that extend liability for disclosure breaches, a lawyer says.

The commission alleges Nuplex and directors John Hirst, Robert Aiken, Barbara Gibson, David Jackson, Bryan Kensington and Michael Wynter failed to disclose a banking covenant breach to the New Zealand Stock Exchange (NZX) within a specific time period, which allowed a false market to develop and damaged the reputation of the securities market.

The commission alleges that had the company disclosed it was in breach of its banking covenant earlier, shares would have traded as much as 30 per cent lower.

Nuplex said it was engaged in confidential discussions with its bank and was not required to make an immediate announcement to the market.

Chapman Tripp partner Roger Wallis said this was the first time the commission had brought proceedings under the 2008 changes to the Securities Market Act.

The commission had also decided to take action against both current and former directors of Nuplex, which the new amendments allow.

The case against Nuplex and the directors are civil proceedings, whereas the directors of failed carpet company Feltex, who were acquitted in August, faced criminal charges for allegedly not disclosing that the company was in breach of its banking covenant and that its debt was current - meaning the bank could call it in.

Wallis said the Ministry of Economic Development and the commission should strongly enforce statutory requirements to maintain investor confidence. But directors also needed to be confident they would not be penalised for decisions that were taken after full consideration and after seeking expert guidance.

In theory company executives, legal advisers or public relations consultants could be liable under the rules.

The commission is seeking penalties of up to $1 million a defendant and compensatory orders.