Hotchin case still in the mix

Former Hanover director Mark Hotchin. Photo / Paul Estcourt

Situation unclear on settlement talks with FMA after director's appeal last week.

The regulator suing six former Hanover directors and promoters refuses to say whether or not Mark Hotchin's action against the failed finance group's trustees will delay or affect settlement talks between the parties.

Hotchin and five others associated with Hanover companies are being sued by the FMA for allegedly misleading or untrue statements in finance company prospectuses.

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 Herald revealed in February that a separate stoush between Hanover and its insurance broker has been parked to enable the six defendants to enter into settlement talks with the FMA.

The FMA won't comment on the settlement talks. An FMA spokesman also declined to comment when asked if Hotchin's action against Hanover trustees would delay or have any bearing on the settlement talks.

Hotchin last year attempted to join two trustee companies - New Zealand Guardian Trust Company and Perpetual Trust - into the Financial Markets Authority's civil case against him. Hotchin argued the trustees held a duty of care to investors and that they should contribute to any damages payable if the FMA's case succeeds. But the trustees fought the attempt and last year the Chief High Court Judge struck out Hotchin's application to join them in the civil action.

The Queen's Counsel acting for Hotchin, Nathan Gedye, last week appealed the decision to strike out. The Court of Appeal reserved its decision. Gedye would not comment last week on whether this appeal would have any impact on settlement talks.

In striking out the application, Justice Helen Winkelmann said the trustees did not have a duty to verify the accuracy of statements in the prospectuses.

"It cannot be argued that the trustees owed a duty to monitor the prospectuses. The trust deeds, Securities Act and regulations and the prospectuses do not suggest that the trustees have any responsibility for the overall contents of the prospectuses, and the imposition of such a duty would run contrary to the legislative division of responsibilities between issuers, trustees and auditors," she said.