Bridgecorp, the failed finance company whose directors were imprisoned for making false statements in offer documents seeking investor funds, was on the path to insolvency when it issued the prospectus in 2006, Crown lawyer Brian Dickey told the Court of Appeal today.

The company's former chief financial officer Rob Roest is appealing his High Court conviction and six-and-a-half year sentence for making untrue statements in the prospectus. Bridgecorp collapsed in 2007 owing $459 million to 14,500 investors.

The prospectus was "an act of desperation" as the company sought to shore up its cash position, but it didn't sell it to the public that way, Dickey said.

Bridgecorp was in a liquidity squeeze with optimistic cash flow projections which weren't being met, as problem loans which couldn't be repaid were rolled over instead of being classed as impaired, Dickey said.


To bolster its cash position, Bridgecorp in September 2006 turned to rival finance company St Laurence for a higher interest rate secondary loan to pay investors when maturities fell due as reinvestment rates declined and new investment money dried up, he said.

"Bridgecorp did not fail unexpectedly or it shouldn't have failed unexpectedly to its directors," Dickey said. The company's financial position "very patently paints a picture that this company is on a trajectory to insolvency at the time it issued the prospectus."

At December 2006, as Bridgecorp was looking to tap investors for more funds, it had about $480 million of investor funds under its care, a cash balance of about $152,000 in its bank account and about $20 million a month of debentures expiring.

"At that level, directors should have fallen off their chairs," Dickey said. "If you were awake at the wheel and you were testing the cash flow of Bridgecorp you knew week by week and month by month that they were optimistic and wrong."

In his position as head of finance, Roest would have been involved in regular executive and board reports about the company's financial position, Dickey said.

The appeal in which Roest is representing himself is in its final day and is proceeding.