Australia puts heat on Air NZ

By DANIEL RIORDAN

Australia's top securities regulator is intensifying its investigation into the behaviour of Air New Zealand directors over Ansett's collapse last September.

Its efforts raise the possibility of court action by aggrieved Australian investors.

Australian Securities and Investments Commission chairman David Knott yesterday gave a qualified bill of health to Ansett directors (largely the same group as the then Air NZ board), who had also been under scrutiny for possible breach of their governance duties and insolvent trading.

But he said the commission was now focusing on Air NZ's financial disclosures to the market before Ansett's collapse.

"The commission believes that, depending on the the outcome of further inquiries, the public interest may be served by a representative action for damages against Air NZ in relation to the level of its financial disclosures."

Under Australian securities law, the commission can initiate a civil court hearing. The extent of damages that the court may award is not defined.

The commission's investigation has a cut-off date of September 12, which precedes Prime Minister Helen Clark's comments on September 25, when she advised Air NZ investors to hold on to their shares.

The commission has established a special taskforce to examine this issue over the next three months, headed by Jamie Orchard, its director of enforcement.

It will publish advertisements next month providing more information and inviting affected investors to contact it.

Mr Knott said the commission needed to address "considerable complexities" before deciding if Air NZ had a case to answer.

They included further consideration of the disclosures made by Air NZ, and establishing the identity of people who had suffered damage as a result of any failure by Air NZ to keep the market properly informed.

They also included determining the damages for which a lawful claim could be made on behalf of such people.

The commission expects the taskforce to complete its report by the end of May.

The commission began its investigation on September 14, the day after Ansett was cut off by its parent.

Ansett's future now looks exceedingly bleak after a proposed sale to a syndicate of Australian businessmen fell over this week.

The New Zealand Securities Commission began its own investigation two weeks after the Australians under section 10 of the Securities Act 1978.

Its inquiry focused on the circumstances surrounding the trading, halts in trading and reinstatement of trading in Air NZ shares during that month. Spokeswoman Catherine Chapman said yesterday that the New Zealand watchdog was continuing its work.

It had no comment on its Australian counterpart's announcement.

Last month, New Zealand's stock exchange market surveillance panel cleared the behaviour of Air NZ and the Government during the collapse.

But the panel also concluded that the issues raised - including public statements on Air NZ by cabinet ministers - should be considered by the exchange to see if the rules need changing.

Mr Knott said the Australian Securities and Investments Commission had "carefully considered" the findings of the surveillance panel's report before deciding to continue its investigation of Air NZ directors.

The commission had finished its investigation into the conduct of Ansett's directors and would not take any action against them.

"There is no realistic prospect for successfully prosecuting the directors of Ansett for breach of their general duties of care under the Corporations Act or for insolvent trading. This view is confirmed by senior counsel.

"The factors contributing to this conclusion include the steps taken by the Ansett directors to obtain financial support from their parent company, including a letter of comfort for $400 million for working capital commitments in August 2001."

Mr Knott said it was unlikely that evidence existed to cause these conclusions to be reconsidered, but the commission would reserve its position until it had completed all aspects of its investigation.

Air NZ was understated in its reaction to the commission's decision to deepen its investigation of the airline's directors.

In an announcement to the New Zealand Stock Exchange, Air NZ general counsel John Blair said the company welcomed the commission's decision "that there is no sound basis for instituting proceedings in respect of insolvent trading or possible breaches of director's duties".

"The company will continue to cooperate fully with Asic in its ongoing inquiries into the adequacy of disclosures made to the market in the period leading up to September 12."

Act MP and former Securities Commission member Stephen Franks called the commission's decision a bombshell.

"They're threatening to sue directors after the panel cleared them and before the New Zealand Securities Commission reports on its investigation.

"The commission is now going to be in real strife if it says 'no problem'.

"Whatever the commission says now will be overshadowed by the Aussies saying they're not satisfied and they're going to spend three months looking into it," said Mr Franks.

"This is very heavy stuff for an Australian Government organisation to be doing about a New Zealand Government company."

Air NZ directors when Ansett collapsed on September 13 included two current directors, Sir Ron Carter and Ralph Norris (now managing director).

Directors who have since left the board include Sir Selwyn Cushing, Liz Coutts, Jim Farmer, QC, Bill Wilson, QC, Greg Terry, Philip Burdon, John Curtis, C. K. Cheong, Charles Goode, John Rose and Michael Tan.