CBL directors fined for disclosure breaches, FMA draws attention to court order

CBL Corp was worth $747 million when trading of its shares on the NZX was suspended in February 2018.

The High Court has ordered CBL Corp (CBLC) and four of its former directors to pay penalties for continuous disclosure and misleading conduct breaches following proceedings brought by the Financial Markets Authority (FMA).

The proceeding related to CBLC, then a listed entity, failing to disclose material information to the market during 2017 and 2018.

CBLC and the four directors – Sir John Wells (who was chairman of the CBLC board), Tony Hannon, Paul Donaldson and Ian Marsh - entered into settlement agreements with the FMA in May this year.

Wells, Donaldson and Marsh were each ordered to pay the jointly submitted penalties of $1 million; Hannon was ordered to pay the jointly submitted penalty of $1.1m.

Hannon’s penalty was higher than that of the other directors to reflect his elevated culpability in respect of one of the breaches.

CBLC was ordered to pay the jointly submitted penalty of $5.78m.

Because the company is in liquidation, the FMA said it would not seek to enforce payment of the penalty so that CBLC’s assets can be used to repay creditors and investors as much as possible.

In his decision, released today, Justice Gault agreed with the FMA that “the present case is the epitome of what the fair dealing provisions and continuous disclosure regime are designed to prevent”.

Gault continued: “The conduct was completely inconsistent with promoting the confident and informed participation of business, investors and consumers in New Zealand’s financial markets”.

The lack of accurate disclosure “meant that investors were wholly unaware of the escalating problems at CBLC”.

Gault agreed the defendants’ conduct was reckless or careless in relation to six of the seven contraventions.

The FMA’s head of enforcement, Margot Gatland, said the case showed the FMA would hold to account companies and directors for breaches.

“Disclosure is a fundamental obligation which ensures New Zealand’s listed capital markets are efficient, transparent and fair, and that there is equality of information in the market,” she said.

The defendants have settled separate civil proceedings with shareholders and liquidators for a sum of $72.5m, which includes personal contributions by each of CBLC’s directors and will see approximately 53 per cent of the sum paid to CBLC shareholders who participated in the proceedings.

The settlement was entered into without any admission of liability by the defendants and the sum is payable on behalf of CBLC and all of CBLC’s directors.

The company was put into voluntary administration in February 2018, and then placed in liquidation in May 2019.

CBLC was listed on the NZX Main Board in 2015.

It had a market capitalisation of $747m, and a share price of $3.17, when trading of its shares was halted and then suspended in February 2018.