Court waits for Hanover defence

Mark Hotchin. Photo / NZPA

Six former directors and promoters of Hanover Finance facing civil action have yet to file statements in their defence with the High Court.

The Financial Markets Authority is suing Mark Hotchin, Eric Watson, Greg Muir, Bruce Gordon, Sir Tipene O'Regan and Dennis Broit over allegedly misleading or untrue statements made in Hanover offer documents.

The FMA filed its statement of claim against the six men at the end of March.

Under High Court rules, the defence is required to file statements in reply within 25 working days of being served documents.

This means the Hanover statements of defence should have been filed by the middle of May.

But a High Court official yesterday said the the documents had not been received.

While this is outside the filing period set out in court rules, a registrar told the Weekend Herald it was up to the plaintiff to pursue the matter.

The plaintiff is the FMA, and a representative said yesterday it had agreed on a timetable for filing of the statements of defence.

Hotchin's lawyer, Bruce Stewart QC, said documents would be filed very shortly but could not give an exact date.

The FMA is seeking compensation for investors who put $35 million into Hanover Finance, Hanover Capital and United Finance between December 2007 and July 22, 2008.

The market watchdog is also seeking penalty orders against the defendants, and if the claim is successful, the former directors and promoters could each face fines of up to $5 million.

The amount of the fine, if any, is determined by the court but the 10 causes of action filed against the six men each carry maximum pecuniary penalties of $500,000.

In the December 2007 prospectus targeted by the FMA, former Hanover chairman Greg Muir said the board was confident of the charging group's ability to meet obligations to secured deposit and capital bond holders.

"We expect operating conditions in the year ahead to be more challenging than in the previous 12 months ... however, we are well placed to manage through this period and deliver good returns to our investors," Muir said in the prospectus.

But the FMA's statement of claim against the defendants says these and other parts of the prospectus "were individually or collectively untrue" as they did not mention factors contributing to the deterioration in the company's liquidity between June 30 and December 7, 2007.

The FMA also alleged there was a substantial decline in Hanover's reinvestment rate, which had fallen from 81 per cent in June 2007 to 34 per cent by December of that year.

The company's conduct caused substantial loss or damage to the subscribers for the securities involved and has materially damaged, or was likely to damage, the integrity or reputation of New Zealand's securities markets, the FMA alleged in its statement of claim.

As well as targeting the Hanover Finance prospectus, the FMA has also filed action over alleged untruths in the United Finance and Hanover Capital prospectus, four advertisements and three investment statements.