Eric Watson only one of Hanover directors not to settle   6 Jul 2015

Eric Watson only one of Hanover directors and promoters not to contribute to $18M FMA settlement

By Fiona Rotherham

July 6 (BusinessDesk) - Hanover Finance former shareholder Eric Watson isn't contributing to the $18 million settlement reached between the Financial Markets Authority and directors and promoters of the group just two weeks before a civil claim was due to be heard in court.

His name is omitted from the settlement agreement which lists contributions from the other five directors and promoters – Mark Hotchin, Tipene O’Regan, Greg Muir, Bruce Gordon and Dennis Broit. The FMA confirmed the negotiations had included insurers who provided the directors indemnity insurance but wouldn’t detail how much of the $18 million settlement came from insurance payouts.

Watson was not a director of any of the three companies, Hanover Finance Ltd (HFL), Hanover Capital Ltd (HCL) and United Finance Ltd (UFL), and therefore, would have been unable to claim on insurance. He has also refused to admit he was a promoter of the company as claimed by the FMA.

The money will be distributed to eligible investors who invested in the three companies in the period from Dec. 7, 2007, to July 23, 2008. Of the 16,500 investors of all three companies, it’s estimated only 5,500 will be eligible for a payout, and the sums involved also vary.

It’s thought Hanover Finance deposit holders will get between 14 cents and 17 cents in the dollar, while United Finance secured stockholders will get 16 cents to 20 cents in the dollar, and Hanover Capital bondholders will get between 5 cents and 7 cents in the dollar.

The FMA has hired Deloitte to work out distributions on a pro rata basis and the first payment is expected to be made in October.

The original action filed in 2012 by the FMA was a civil claim for $35 million and alleged misleading and untrue statements were made in prospectuses and advertisements distributed by Hanover between December 2007 and July 2008 about the financial position of the companies in that period.

The defendants, who continue to deny liability and dispute the FMA’s claims, are expected to release a media statement shortly. Muir, who was about to board a plane in the US, said “we’re putting out a statement later in the piece and I’ll leave it at that.”

FMA head of enforcement Belinda Moffat said the FMA had investigated events prior to and after the period involved in the civil claim, including the later moratorium Hanover Capital investors agreed to in 2008, but felt the period of December 2007 to July 2008 provided the strongest evidence to take a case to court.

Hanover Finance froze half a billion dollars of investor funds in July 2008 after running into financial difficulties and investors eventually voted to accept a debt-for-equity deal with Allied Farmers, which later turned sour. Both Lehman Brothers and Lombard Finance and Investments had looked at possibly buying the loans in early 2008, former Lombard boss Michael Reeves said in court testimony in 2011.

The Serious Fraud Office conducted a lengthy investigation into Hanover and its related companies but didn't lay any criminal charges.

“This was not a proxy for the overall Hanover situation, we didn’t have the remit or the evidence to be able to open a much broader case,” said FMA chief executive Rob Everett.

The settlement includes Hotchin, Muir, O’Regan and Gordon giving voluntary undertakings not to act as directors of a bank or non-bank deposit-taker until May 2018 without the FMA’s written approval. Watson and Broit have given representations to the FMA that they do not intend, now or in the future, to act as directors of a bank or non-bank deposit-taker.

Everett said the undertakings fall short of a management ban that may have been handed down in a successful court decision where they would have been banned as directors of any company. But he said it was still an important part of the settlement that they couldn’t be directors of a similar company for the next three years.

He said the decision to reach a settlement was carefully considered within the FMA and it was felt the settlement provided a better and earlier outcome for investors than going to court where the outcome was uncertain and the costs of taking the case could have eaten into the sum investors would have ended up with.

Moffat said in discussions with affected investors, most said they wanted certainty now and given a court trial could have taken two years to complete, with appeals taken into consideration, a settlement was the quickest and most certain way of providing an outcome now.

The FMA said the investigations into Hanover, including taking asset preservation orders against Mark Hotchin, had cost $3.5 million and a further 10,000 hours of the market watchdog’s staff time.

(BusinessDesk)

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