FMA's bid to probe Hotchin affairs for more assets rejected

Investigators will not be permitted to look into eight organisations that are possible holders of Hotchin's assets. Photo / Paul Estcourt

A judgment on the freezing of Mark Hotchin's assets reveals that investigators want to look into the affairs of eight other organisations they believe might hold assets on behalf of the former Hanover director.

But Justice Helen Winkelmann rejected the Financial Markets Authority's (FMA) attempt to do so, suggesting it was on a fishing expedition - "a full-scale collection of information about all entities associated with Mr Hotchin".

Her judgment this week, which maintained a freeze on the Hotchin assets other than personal effects, spelled out entities the authority had sought "disclosure orders"' against.

The FMA's predecessor, the Securities Commission, had obtained asset preservation orders in December to stop Hotchin, two family trusts and accountant Tony Thomas "dealing with" properties held for or controlled by him.

This week's judgment has freed Thomas from that constraint and removed most of the conditions from the KA3 Trustee and KA4 Trustee, which had stopped both from repaying any debt to Hotchin and KA4 from dealing with the Hotchin house in Paritai Drive. The FMA wanted more disclosure from the two trusts but was turned down.

Justice Winkelmann revealed, however, that "the authority seeks further disclosure orders against Mr Thomas, which relate to other entities not joined as parties [in this case].

"These, it says, will assist it in identifying whether there are other entities associated with Mr Hotchin that hold assets on his behalf.

"This is on the basis that these other entities may hold or control assets not listed in Mr Hotchin's Statement of Assets and Liabilities but in which Mr Hotchin, or entities controlled by him, retain a beneficial interest," the judgment says.

"[The FMA] identifies these entities as: KA No2 Trustee (as trustee of KA2 Trust), 520 Queen Street Holdings, Contact Capital, ABH Trustee, HL Trustee, HTL Trust Investment, KM Trustee and Karaka Holdings."

Companies Office records show that Thomas is the only director and sole shareholder of the KA2 Trustee.

Thomas is also listed as the director of KM Trustee. Hotchin was listed as a former director - that ceased on August 13, 2008.

Hotchin is listed as a current director of 520 Queen Street Holdings, ABH Trustee, HTL Trust Investment and Contact Capital, together with Eric Watson.

"The authority seeks these disclosure orders in order to ascertain whether any of these entities are controlled by or are holding assets on behalf of Mr Hotchin, and to ascertain whether there may still be further entities associated with Mr Hotchin."

Justice Winkelmann said the FMA sought the disclosure orders "by the device of seeking the orders against the director of each of these companies, Mr Thomas", despite their not being joined as parties.

She ruled that "this is a procedurally flawed approach. If orders are sought in respect of these entities they must be joined to the proceedings.

"Insofar as the jurisdiction to make orders ancillary to asset preservation orders relates to parties other than the relevant person, I also do not consider that the jurisdiction extends as far as the authority contends in this particular case.

"The authority is proposing to utilise the information to conduct what will surely be a substantial investigation into the affairs of each of these entities. This goes beyond the scope of the legislation and amounts to a full-scale collection of information about all entities associated with Mr Hotchin.

"This occurs not only in advance of proceedings being commenced by the authority but also in advance of the authority pleading on what basis it says these entities have any involvement with his assets.

"I therefore decline all applications for further disclosure."

The FMA would not say whether it would try to have the eight other entities joined to the proceedings or if it was investigating their affairs.

Justice Winkelmann has given the authority until next Friday to update the court on progress in its substantive investigation into suspected breaches of the Securities Act by Hotchin, relating to his role as director of companies in the Hanover Finance group.

The judge commented: "I am satisfied from the material put forward [by the FMA] that there are good grounds for the authority to continue to investigate the statements made in the three prospectuses and extension certificates.

"It is also clear that these are matters of significant public concern affecting the interests of a significant group of aggrieved persons."