Nathans director entitled to take expert advice, court told

Former Nathans Finance director Mervyn Doolan. Photo / Paul Estcourt

Former Nathans Finance director Mervyn Doolan was entitled to rely on expert professional advice, as well as the advice of the company's management team, the High Court at Auckland heard yesterday.

Doolan, together with two other former directors, Donald Young and Roger Moses, are defending allegations they breached the Securities Act.

In summing up the defence yesterday, Doolan's lawyer Nathan Gedye said company directors were entitled to rely on the information provided to them by auditors, accountants, lawyers and their own staff.

Gedye cited the case between the Ministry of Economic Development and the directors of Feltex Carpets. The case resulted in the Feltex directors being acquitted because the court ruled they had the right to rely on the information provided to them.

"The judge concluded that the directors were entitled to rely on the professional advice they had obtained, [that they] had taken all reasonable and proper steps and were accordingly not guilty of the charges laid," Gedye said.

"It is submitted that in assessing whether a director had reasonable grounds to believe a statement in a prospectus or advertisement was true, he or she must be entitled to rely on the work or advice of the company's management and external experts or professionals.

"In this case, reliance on third parties represents a powerful basis for reasonable belief by Mr Doolan."

Gedye said Doolan, as well as Young and Moses, believed Nathans' management team to be competent, experienced and reliable, and therefore it was "appropriate" for Doolan to rely on the work performed by them.

Gedye added that it is an auditor's job to ensure that a company's financial statements comply with generally accepted accounting practices and give a true and fair view of the company's financial position.

The Crown's case against the three former directors started on March 22. It is expected to finish by the end of this week.

The directors are defending allegations that the statements they issued concerning related party lending (to VTL), the quality of its loan book, its loan management practices and its management of liquidity were untrue.

The commission claims the directors made untrue statements in the company's registered prospectus and investment statement of December 13, 2006.

It further alleges the directors made untrue statements when they signed a prospectus extension certificate on March 30, 2007.

A fourth director John Hotchin, younger brother to former Hanover director Mark Hotchin, pleaded guilty to breaches of the Securities Act in February.

He avoided a jail sentence, but was sentenced to 11 months home
detention, in part after agreeing to
testify against his former colleagues.