FMA wouldn't have won at trial: Hanover directors

Mark Hotchin and three other Hanover directors have released a statement saying the FMA wouldn't have won at trial. Photo: Brett Phibbs.

The Financial Markets Authority wouldn't have won at trial, said Mark Hotchin and three other Hanover directors who have reached an $18 million settlement with the regulator.

The four directors - Hotchin, Bruce Gordon, Gregory Muir and Tipene O'Regan - also said the failed finance company had "excellent reporting systems and high quality management and governance".

"Hanover ceased business in July 2008 because of the effects of the GFC on Hanover's borrowers, not because of any mismanagement. We regret the loss of investors' money," the directors said in a just released statement.

A Court of Appeal judgment said Hanover failed in mid-2008, causing substantial losses to depositors.

About 16,000 people with investments totalling more than $500 million lost most of their money after the failure of Hanover and related companies, and the sale of assets to Allied Farmers.

The four men are part of a group of six who settled a civil claim launched by the FMA, which will see $18 million returned to certain Hanover investors.

The claim alleged untrue statements in certain Hanover offer documents released between December 2007 and July 2008.

The other two who settled were Hanover Group directors Eric Watson and Dennis Broit.

Watson was not required to contribute funds to the settlement but was one of the defendants in the claim. All six denied liability.

See the full statement from Hotchin, Gordon, Muir and O'Regan below.

Eric Watson not required to contribute to $18 million Hanover deal

Former Hanover owner Eric Watson wasn't required to contribute any money to an $18 million settlement with the Financial Markets Authority that will see up to 5500 investors get a payout.

Watson, a director of Hanover Group but not of the companies that accepted investor funds, is absent from the list of five others associated with the finance group who will pay the funds as part of a settlement of the FMA's claim.

Former Hanover owner Eric Watson is absent from the list of five others associated with the finance group who will pay the funds as part of a settlement of the FMA's claim. Photo: Dean Purcell.

The settlement agreement says the payment may include a contribution from the men's insurers.

Watson was one of the defendants in the FMA's claim, which alleged misleading and untrue statements were made in offer documents distributed by Hanover between December 2007 and July 2008 about the financial position of the companies.

The other defendants were Mark Hotchin, Greg Muir, Bruce Gordon, Sir Tipene O'Regan and Dennis Broit.

All six men, including Watson, have settled the claim with the FMA and deny any liability. FMA chief executive Rob Everett would not comment on why Watson was not specifically listed as having contributed.

The FMA's investigation and associated action has cost taxpayers an estimated $3.5 million.

On top of this around 10,000 hours of FMA staff time was spent on the case and on the asset freeze proceedings against Hotchin and entities associated with him.

The FMA, in its case, was seeking compensation for investors who put $35 million into Hanover Finance, Hanover Capital and United Finance from December 2007 to July 2008.

It is hoped the first distribution of the $18 million could be made by October.

It is estimated eligible investors will receive between 5 cents and 20 cents in the dollar depending on which Hanover vehicle they had their money with.

The FMA is working with professional services firm Deloitte to work out how much will go to each eligible investor.

Everett said this morning that the deal achieved the most for investors, in the shortest possible time.

The FMA's primary focus was getting redress for investors, he said.

"The alternative route of coming to trial would have taken two or more years before any resolution...$18 million to be paid to investors now is a better outcome," Everett said.

He said it was entirely possible that any court judgment the FMA obtained would have been for less.

Asked whether he thought it was appropriate to settle given the serious allegations involved and the fact a receiver or liquidator had not investigated the companies and the lead up to their moratorium in 2008, Everett said:

"The case we took in relation to disclosure in a specific period was never going to be a proxy for the overall Hanover situation.

We didn't have the remit or the evidence that would have enabled us to open up a much broader case so by its nature these proceedings were only limited to a subset of the investors and only a subset of the issues that attach to Hanover...it was never going to cover the fuller picture," he said.

An admission of liability was not going to come from the defendants as part of a settlement process, Everett said.

"We're comfortable this was the best deal we could get," he said.

Hotchin, Muir, O'Regan and Gordon, as part of the settlement, have given voluntary undertakings not to act as directors of a bank or non-deposit-taker until May 2018 without the FMA's written approval.

Watson and Broit have given representations to the FMA that they do not intend, now or in the future, to act as directors of a bank or non-bank deposit-taker.

Everett acknowledged these undertakings were not as prohibitive as the management bans that could have been imposed if the FMA was successful at trial.

"We felt this was an important piece of the overall settlement, such that anyone who is operating in this space will know the impact of some of those undertakings," he said.

Hotchin, Gordon, Muir and O'Regan's full statement:

"We were surprised and disappointed when the FMA decided to issue a civil claim against us at the end of 2011. We had spent more than a year assisting the Securities Commission, then the FMA, in their investigations.

"We had provided the FMA with a voluminous -and completely favourable- report from independent forensic accountants, and another from our solicitors.

"We, and the experts we had retained to report on Hanover affairs, thought it was clear that there had been no breach of the Securities Act, and that any fair and expert assessment, free of any political considerations, would lead the FMA to close its file.

"Hanover had excellent reporting systems and high quality management and governance.

"All directors at all times believed on reasonable grounds that the statements in the prospectuses were true. We do not believe the FMA would have succeeded at trial.

"Hanover ceased business in July 2008 because of the effects of the GFC on Hanover's borrowers, not because of any mismanagement. We regret the loss of investors' money.

"We decided to settle because of the cost and burden of litigation lasting for many more years, and because our insurers and former insurance broker made it possible to provide a payment which will go to the investors.

"We are pleased that this result for the investors has been possible. We agree with the FMA that this outcome for investors (and taxpayers) is without doubt far better than any likely result after trial in future years."