Having lost around $80 million in investors' money, directors of Five Star Finance today face criminal charges in the Auckland District Court. The hearing is likely to be the start of a series of legal actions against the directors.
Marcus MacDonald, Anthony Bowden, Nicholas Kirk and Five Star
executive Neill William, regarded as a de facto director by the Ministry of Economic Development's National Enforcement Unit, are facing charges under the Securities Act.
The NEU alleges Five Star Finance Ltd and Five Star Debenture Nominee Ltd offered and allotted debenture stock to the public without having a registered prospectus or investment statement. If convicted, the directors are liable to a fine of up to $300,000.
Five Star Debenture Nominees, which owed $42.6 million to a relatively small number of private investors, was placed in receivership in November last year, more than two months after sister company Five Star Consumer Finance collapsed owing investors $54.4 million. Five Star Finance was placed in receivership a week after Five Star Consumer Finance.
Five Star Consumer Finance's 2300 investors last week were told they would soon receive a 5c per dollar repayment on their investment. That will take total repayments to 22.5c in the dollar.
Receivers Richard Agnew and Anthony Boswell of PricewaterhouseCoopers previously told investors to expect between 20c and 25c in the dollar back and they have yet to revise that estimate.
Virtually none of the money raised by Five Star Debenture Nominees and subsequently advanced to Five Star Finance is expected to be recovered, taking likely losses across the companies to more than $80 million.
In their reports, Agnew and Boswell have highlighted a complex web of related party lending and a series of loans made "outside normal commercial lending practices" many of which were made without adequate, or even any security at all.
Agnew and Boswell have begun civil proceedings against the Five Star Consumer Finance directors alleging breaches of duties. The Securities Commission and Serious Fraud Office are understood to have separate investigations into Five Star companies.
