Settlement reached for Strategic Finance claims

Settlement reached for Strategic Finance claims

PwC Partners John Fisk and Colin McCloy, as Receivers of Strategic Finance Limited (In Receivership and Liquidation) (Strategic), and the Financial Markets Authority (FMA), have announced today that they have finalised a settlement agreement with the former directors and auditors of Strategic for $22 million.

The settlement represents some 5 cents in the dollar for secured investors and will mean that total distributions to secured investors by the end of the year will amount to 15 cents in the dollar.

As part of the settlement, the directors have undertaken that, without prior written approval of the FMA, they will not:
1. act as a director or promoter of a public issuer for five years; or
2. accept appointment as a Chief Executive Officer or Chief Financial Officer (or equivalent) of a public issuer of securities for three years.

The agreement settles civil claims made by the Receivers against Strategic’s directors for alleged breach of duties under the Companies Act 1993 and claims against the auditors for the 31 December 2007 audit. It also settles claims made by FMA against Strategic’s directors for alleged breaches of the Securities Act 1978. The settlements are made without any admission of liability by any party, and encompass all claims as between the Receivers, FMA, trustees, liquidators, directors and auditors.

Mr Fisk says, “The confidential settlements with the directors and auditors are subject to one remaining condition which is expected to be met over the coming months, with payments due to be completed by November, enabling the Receivers to make further distributions to secured debenture investors prior to the end of this year.”

Belinda Moffat, FMA Director of Enforcement and Investigations said, “The recovery of compensation for investors and the undertakings from the directors through this settlement is an appropriate response to FMA’s concerns and is in the best interests of investors. This resolution demonstrates the commitment and co-ordination between FMA and the Receivers to reach an outcome we believe will help to continue to restore confidence in our financial markets.”

Strategic, which had significant cash reserves in early February 2008, ceased ordinary course trading in early August 2008 and entered into a moratorium with its investors in December 2008. It was eventually placed into receivership on 10 March 2010.

The Receivers’ claims against the directors and auditors have principally focused on losses suffered by the company during 2008, prior to the agreed moratorium. The Receivers have also focused on recovery of the loan book whilst also investigating other potential recovery options for investors.

Mr Fisk says, “We are pleased that we have made a significant step forward in resolving one of the last major issues for the receivership of Strategic. The settlement process was rigorous and complex, but agreement was ultimately able to be reached between all parties.

“We have conscientiously weighed the negotiated settlement we have been able to achieve against the risks and benefits of litigation.

“In the end, and following consultation with key stakeholders, the decision by us and FMA to agree to the settlement will enable secured investors to have certainty and further funds before the end of this year.”

Work continues by the Receivers on realising the remaining loan book assets and concluding the receivership. A revised estimate of the final outcome for secured debenture investors will be provided in the Receivers’ next update.

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About the FMA
The FMA was established on 1 May 2011 under the Financial Markets Authority Act 2011, in response to the need to address failures in the financial markets, made evident from the global financial crisis. The Government recognised that New Zealand required a single financial markets conduct regulator to proactively monitor and enforce financial markets legislation.

The FMA is an independent Crown entity and has the following functions:

• to monitor compliance with, investigate contraventions of, and enforce securities and investment law, financial reporting law, and companies law, in respect of financial markets participants;
• to promote confident and informed participation in the financial markets;
• to license and supervise particular financial markets participants, including financial advisers, trustees and statutory supervisors, auditors, and securities markets;
• to monitor and conduct inquiries and investigations into financial markets and financial markets participants; and
• to keep the law under review.

The FMA is committed to taking appropriate enforcement action against those whose behaviour threatens market integrity and investor confidence in New Zealand.

More information about the FMA can be found at www.fma.govt.nz

ENDS

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