Financial Markets Authority secures win against CBL’s former CFO over disclosure breaches

Formerly listed CBL Corporation collapsed in 2018.

The Financial Markets Authority (FMA) has scored another victory in its long-running battle with directors and staff of the former NZX-listed insurer CBL Corporation.

The High Court found former CBL group chief financial officer Carden Mulholland breached continuous disclosure provisions of the Financial Markets Conduct Act 2013 (FMCA).

The FMA has already reached in-court settlements with CBLC, its managing director Peter Harris, and its former independent non-executive directors in the past two years.

The ruling against Mulholland is the first time New Zealand courts have considered the liability of a CFO acting as an accessory to a company’s contravention under the FMCA.

CBLC listed on the NZX’s main board in 2015 before its collapse in 2018.

Mulholland was found to have had the required level of knowledge and participation in the conduct to make him personally liable, as an accessory, to three of CBLC’s continuous disclosure contraventions. These related to:

• The existence and impact on regulatory solvency of approximately $35 million of aged receivables (insurance premiums owed to CBL Insurance but not paid to it). This issue was known to CBLC by August 24, 2017, but not disclosed to the market until February 5, 2018.
• The need for CBL Insurance to strengthen its reserves by approximately $100m. This was known to CBLC by January 25, 2018, but not disclosed to the market until February 5, 2018.
• A direction issued to CBL Insurance Europe (CBLIE) by its prudential regulator, the Central Bank of Ireland, requiring CBLIE to hold additional cash reserves of €31.5m. This was known to CBLC by January 30, 2018, at the latest but not disclosed to the market until February 7, 2018.

Margot Gatland, FMA head of enforcement, said the judgment represents a significant step in the case brought by the FMA against CBLC, its directors and its CFO.

“It sets an important precedent for holding a CFO accountable for an entity’s continuous disclosure breaches and provides judicial guidance for senior executives of listed entities in respect of the continuous disclosure requirements,” Gatland said.

“The FMA considers the findings of liability against Mulholland reflect serious misconduct by a senior officer of CBLC who failed to comply with fundamental obligations of the continuous disclosure regime.”

The court ruled Mulholland was not liable in respect of two further causes of action:

• A fourth continuous disclosure cause of action that related to a transaction the judge found to be conditional and to not have a material impact on solvency.
• A cause of action brought under the fair dealing provisions of the FMCA relating to a market announcement in August 2017 detailing a “one-off” increase to CBLI’s reserves. While the court determined that CBLC contravened the FMCA in respect of this announcement, it held Mulholland was not an accessory to that contravention.

A hearing will be set down to determine the appropriate penalty for Mulholland in the coming months.

Last year, Harris was ordered to pay a $1.4m penalty for continuous disclosure and misleading conduct breaches.