Backstops drop easy finance company catches

Jane Diplock, the imposing chair of the Securities Commission, knows who to blame for the string of finance company failures.

"The buck has to stop with the directors," Diplock is quoted in this NZ Herald story.

Well lots of bucks did stop with the directors but the Companies Office report that sparked the latest round of recriminations actually spread the guilt a little more evenly amongst the various parties including trustees and auditors.

The Companies Office report, tabled in Parliament, is hidden away in another report filed by the Ministry of Economic Development to the Commerce Committee but you can skip all the guff about Auckland infrastructure and 'progress on broadband' and head straight to Appendix B, page 8.

There you will find that, as well as other director screw-ups, there has been a "pattern of the company's CEO or directors having been involved in previous financial industry failures" with Bridgecorp's Rod Petricevic, Lombard's Michael Reeves and Nathan's Roger (Kenneth) Moses all cited as examples of the repeat behaviour.

But auditors, too, were slammed in the report for the lack of "rigour and analytical depth one would expect for entities managing substantial public investments".

"There is a view among receivers that if they had been rigorously audited, it is unlikely many of the failed finance companies would have continued in business for as long as they did," the Companies Office report says.

However, trustee firms - with Perpetual and Covenant singled out in particular - took an even more serious pasting from the Companies Office.

The report called the trustees timid, understaffed and hamstrung by "weak" trust deeds that favoured finance company commercial imperatives over good governance.

The Companies Office also suggested the ownership structure of some trustee companies could weaken their ability to make tough "institutional strength" decisions.

And finally, the report says trustee company mistakes tend to be overlooked by receivers "who are appointed by the trustees, and who look to trustees for further assignments".

"We understand receivers are uncertain as to their standing to consider such issues. There is therefore, in practical terms, no real avenue for investors for examination of the performance of trustees or to pursue redress for negligence in the performance of their duties.


David Chaplin

 

 

 

Pictured above: Securities Commission chair Jane Diplock. Photo/Richard Robinson