A bid this morning by Nathans Finance's former auditor could put an end to a $66 million claim brought by the failed finance company's receiver.
Nathans Finance collapsed in August 2007, owing 7000 investors around $174 million.
Its former directors - Mervyn Doolan, John Hotchin, Kenneth (Roger) Moses and Donald Young - were convicted earlier this year of Securities Act charges relating to untrue statements made in the company's offer documents.
Moses and Doolan were both sentenced to over two years' jail time while Young received nine months' home detention.
Hotchin, who made an early guilty plea and then testified against his former colleagues, received 11 months' home detention.
PricewaterhouseCoopers receiver Colin McCloy has made a bid to recover investor losses from the directors and from the company's auditor, Staples Rodway.
Staples Rodway's Christopher Hughes, who worked with Nathans, pleaded guilty last year to charges brought by New Zealand Institute of Chartered Accountants relating to his treatment of the failed finance company's statements.
McCloy's counsel, Murray Tingey, argued this morning if the auditor had performed its duty, then receivers would have been brought in earlier and more money would have been left for investors.
The auditor failed to properly assess the recoverability of related-party loans Nathans made to VTL Group and subsidiaries, Tingey alleged.
No date for the trial has been set and lawyers for both groups appeared in the High Court at Auckland this morning to hear an application for security of costs from the defendants.
The mechanism is to ensure that if McCloy is unsuccessful in his claim, then there are funds set aside to pay the defendants' court costs.
The application for up to $890,000 security was brought by Staples Rodway after Doolan's counsel withdrew.
But Tingey said only $540,000 was left in Nathans' accounts, which was needed for the receiver's own legal fees.
Moreover, Tingey said if an award of security was made, the $66 million claim against the auditor would have to be dropped.
Many of Nathans 7000 out-of-pocket investors were elderly and it was not feasible for them to put forward funds for security, he said.
However, Staples Rodway's counsel Philippa Fee argued that some of $2.5 million paid to investors in December 2009 should have been left aside for security, especially because the receiver indicated a civil claim may be brought.
Justice Geoffery Venning has reserved his decision on the security for costs.