NZ court fines CBL and directors millions over breaches
New Zealand’s High Court has ordered CBL Corporation and four of its former directors to pay penalties for continuous disclosure and misleading conduct breaches that happened before the company was placed in liquidation.
The orders, which follow Financial Markets Authority (FMA) action, require former chairman John Wells and directors Paul Donaldson and Ian Marsh to pay agreed penalties of $NZ1 million ($930,000). Tony Hannon, also a former director, was ordered to pay $NZ1.1 million ($1 million).
CBL Corporation was ordered to pay $NZ5.78 million ($5.37 million), but the FMA will not enforce payment so the company’s assets can be used to repay creditors and investors as much as possible.
FMA Head of Enforcement Margot Gatland says this is the first case brought under the Financial Markets Conduct Act’s continuous disclosure rules.
“Disclosure is a fundamental obligation that ensures New Zealand’s listed capital markets are efficient, transparent and fair, and that there is equality of information in the market,” she said. “As the court made clear, the contraventions in this case denied investors access to accurate and timely information and the impact on the market was very serious.”
CBL Corporation, which listed on the NZX Main Board in 2015, had a market capitalisation of $NZ747 million and a share price of $NZ3.17 when trading of its shares was halted and then suspended in February 2018. The company entered voluntary administration that month, and was placed in liquidation in May 2019.
The continuous disclosure breaches concerned a failure to provide material information to the market during 2017 and 2018, including around the need for the company’s main operating subsidiary to strengthen reserves.
Other disclosure issues related to the impact of premiums owed but not paid regarding business originated by Securities and Financial Solutions Europe SA, and conditions imposed on CBL Insurance Europe by the Central Bank of Ireland.
The misleading and deceptive conduct concerned an August 24, 2017, announcement referring to a “one-off” $NZ16.5 million ($15.3 million) increase to reserves, when it was likely more reserve strengthening would be needed.
The judgment says the independent non-executive directors were aware the Reserve Bank of New Zealand was among parties questioning reserving adequacy. By January 31 the next year, they knew CBL Corporation was required to make a market disclosure on a $NZ100 million ($93 million) increase in reserves but “failed nonetheless to act immediately to provide disclosure”.
The FMA says CBL Corporation and the four directors made settlement agreements last May, making admissions of liability on seven contraventions of the act and jointly agreeing to the penalties approved by the court.
Justice Ian Gault says the case is “the epitome” of what fair dealing provisions and the continuous disclosure regime were designed to prevent, with investors “wholly unaware of the escalating problems” at CBL Corporation.
“The conduct was completely inconsistent with promoting the confident and informed participation of business, investors and consumers in New Zealand’s financial markets,” he said.
The defendants have settled separate civil proceedings with shareholders and liquidators for $NZ72.5 million ($67.4 million), which includes personal contributions by directors. About 53% of the sum has been paid to shareholders who participated in the proceedings.
That settlement was made without any admission of liability by the defendants, and the sum is payable on behalf of CBL Corporation and its directors.
Other legal actions are continuing, with a court date set for June. The High Court decision handed down in December is available here.