A High Court judge has refused to unveil a confidential settlement as the directors and auditors of LDC Finance prepare to defend litigation aimed at recovering money for out-of-pocket investors.

Nelson-based LDC collapsed last decade owing 1000 investors about $20 million. While some got their money back, unsecured investors received nothing and are still owed more than $12.5 million. Secured investors are owed about $1.5 million in interest over-and-above what they have already got back.

Any further recovery likely hangs on the outcome of upcoming court action brought by LDC's liquidators and a group of investors against the firm's former directors, accountants, trustee and auditor.

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Some of the allegations in the case include that LDC was insolvent from the time it was set up and that its directors ran it "recklessly, incompetently and with disregard for the basic requirements of a finance company".

The allegations are denied.

The directors named in the proceeding are David Miller, Kevin Elliott, Christopher Hardiman and John Janetto. The accountants are Carran Miller Strawbridge, now in liquidation.

The firm's trustee was Perpetual Trust (which has since merged with Guardian Trust) and the auditor was accounting firm Sherwin Chan & Walshe.

Last month, the directors and auditors applied to see the terms of a confidential settlement agreement in a separate case involving another Nelson-based failed finance company, F&I Investments.

In that action, F&I trustees Stephen Eaton and Seddon Marshall reached a deal with LDC Finance, receviers PwC and law firm Buddle Findlay.

One argument Sherwin Chan & Walshe put forward as to why they should see the settlement was that LDC's loss was caused by other professional advisers and the content of the deal is "relevant to the chain of causation".

Justice John Fogarty, when considering the application, said the relevance of the settlement agreement would only deal with the size of any damages that might be awarded in the LDC case.


He declined to lift the confidentiality orders over the settlement but said that the defendants could come back and reapply for this if developments in the LDC case meant they needed to.


Details of what LDC's liquidators and investors are alleging was revealed in a pre-trial decision released late last year.

"The directors were conducting the operation of the company at least recklessly, incompetently and with disregard for the basic requirements of a finance company," Queen's Counsel Hugh Rennie is quoted as alleging in the decision.

The directors' lawyer, Tim Spear, told the Herald in January that his clients refuted the allegations and say LDC was solvent when it went into receivership.

Rennie also submitted it was believed Perpetual had "failed to act as a competent trustee" and that it "agreed to or acquiesced in actions which enabled trading to continue when LDC was insolvent".

Perpetual, in January, also said it strenuously denied the allegations.

The actions or inaction of Sherwin Chan & Walshe allegedly "enabled the issuing of a misleading prospectus" and it failed to identify which borrowers from LDC were "the primary cause of its insolvent position", Rennie alleged.

"Mr Rennie therefore says that the evidence for the plaintiffs will show that from its incorporation, LDC was not an entity to which any informed or prudent investor would have entrusted investments. Its financial statements were a fiction, reporting as assets loans which were not recoverable when due or, in some major instances, at all," the decision said.