Nathans Finance case goes to trial

VTL Group managing director Mervyn Doolan (left) and independant director Roger Moses. File photo

The Crown opened the Securities Commission's case against Nathans Finance this morning stating the failed company operated with an inherent conflict between its parent VTL Group and its investors.

The trial of directors Mervyn Doolan, Kenneth (Roger) Moses and Donald Young started this morning - all three entered not guilty pleas on six alleged breaches of the Securities Commission.

A fourth director, John Hotchin, younger brother to Hanover's Mark Hotchin, pleaded guilty to similar charges last month and was sentenced at the beginning of March.

Hotchin may be called as a Crown witness during the trial.

He had his sentenced reduced from a jail term of up to three years to 11-months house arrest because he agreed to co-operate with the Crown in its prosecution of Nathans.

Crown lawyer Colin Carruthers, QC, said Nathans main business was to fund its shareholder and parent company VTL.

Carruthers said there were very significant conflicts between the accused' interests in VTL and the interests of Nathans' investors.

Doolan, Moses and Young were also directors of VTL, as well as being directors of Nathans.

"The accused, as managers, directors and owners of VTL, held an unreasonable belief in the viability of the VTL business model, and from December 2006 until the receivership of Nathans relied on what was really hope that its business might be saved.

"Those beliefs and hopes seem to have blinded them from their duties as directors of Nathans to its debenture investors in favour of the interests of VTL. Nathans and its flow of debenture funds were the lifeline to VTL with loans on terms that were not arm's length and which were simply uncommercial from Nathans perspective. Loans to related parties were never repaid on due dates, but were simply rolled over and interest capitalised."

The commission alleges that the statements Nathans issued concerning related party lending, the quality of its loan book, its loan management practices and its management of liquidity were untrue.

It claims the directors made untrue statements in the company's registered prospectus and investment statement of December 13, 2006.

These statements concerned related party lending to VTL.

The commission further alleges the directors made untrue statements when they signed a prospectus extension certificate on March 30, 2007.

VTL purchased vending machines and installed its own software into the machines, and then established a franchised network of operators that leased the machines from VTL.

It operated in the US, Europe, Australia and New Zealand.

The directors believed there was money to be made in vending machines, especially ones that provided hot and cold beverages and food.

The case continues.