Nearly $900,000 in reparations paid in by three convicted Nathans Finance directors will go to the receivers and be used for the benefit of all investors who lost money in the failed company, a High Court judge has ruled.
Nathans Finance went into receivership in 2007 owing about $174 million to 7000 investors.
Three former Nathans' directors - Kenneth (Roger) Moses, Mervyn Doolan and Donald Young - were found guilty of making untrue statements in the company's registered prospectus and investment statement dated December 13, 2006.
Moses was sentenced to two years and two months' jail and ordered to pay $425,000 in reparations. Doolan was sentenced to two years and four months' jail and ordered to pay $150,000.
Young was sentenced to nine months' home detention plus 300 hours of community work and reparations of $310,000.
Questions arose after the reparations were handed over on whether the funds should go to those who put money into the company after the release of the offending prospectus or to receivers for the benefit of all investors who suffered when the company collapsed.
Over 5,500 investors put a total of $68,944,342 into the company following the release of the December 13 prospectus.
Some $29 million of this was new monies, while around $39 million was funds that had matured but was reinvested.
Receivers Pricewaterhouse Coopers (PwC) had already been paid $200,000 by another former Nathans' director, John Hotchin - who pleaded guilty to Securities Act charges and gave evidence in the Crown's case.
PwC has collected $1, 283,000 in fees and paid out 3.7c in the dollar to Nathans investors.
While the receivers made a push for the rest of the money, Justice Paul Heath asked the Crown to put forward the contrary view.
The Crown submitted last month that the receivers were not eligible to receive reparations and said the court registrar should be responsible to distribute payments to investors.
"Nathans' receivers cannot receive the reparations for the benefit of all investors. Reparation must be paid to each investor individually, as the persons who have suffered the loss or damage," the Crown said.
However, in a decision by Justice Health made public this morning, the $885,000 from Moses Doolan and Young will go to PwC.
The judge suggested that the reparations would be best used to pursue recovery of funds rather than be paid out as a dividend.
"The vast majority of investors would not receive a material distribution from the reparation monies," Justice Heath ruled.
"It seems to me preferable that the reparation be paid to the receivers of Nathans who can then use it for the benefit of all who have suffered loss. I say that because a sum of $885,000 (plus accrued interest) is likely to be of greater assistance to the general body of investors (because it providers a fund from which the receivers could pursue other means of recovery) than the likely dividend to be paid to those who invested or reinvested after 13 December 2006," he ruled.
"While it may be prudent for the receivers to seek view of investors as to whether they wish the fund to be used in that way or to receive a further dividend, that is something for the receivers to determine."
Justice Heath said there was at least a prima facie (at a first sight) case for receivers to sue the directors under the Company Act. PwC receiver Colin McCloy is attempting to recover investor losses from the directors and Nathans' auditor, Staples Rodway.
While reparations have been payed to the court by the directors of other failed finance companies, PwC said earlier this year that the Nathans decision should not be binding on other cases where circumstances differed.