John Hotchin admits Nathans Finance documents wrong

John Hotchin Photo / Dean Purcell

Former director John Hotchin admitted Nathans Finance got its offer documents wrong and that related party loans were advanced despite the fact they could not be paid back on time, a court heard yesterday.

Hotchin, 51, who is serving a home detention sentence, took the stand at the High Court at Auckland yesterday to give evidence on his role as the co-founder of VTL and as a director of Nathans.

The younger brother of former Hanover director Mark Hotchin pleaded guilty to Securities Act breaches in February.

His sentence was reduced from a jail term to 11 months' home detention for pleading guilty, repaying $200,000 that could lead to his bankruptcy and agreeing to co-operate with the Crown in its prosecution of Nathans.

The other directors, Mervyn Doolan, Donald Young and Kenneth (Roger) Moses, pleaded not guilty to six alleged breaches of the Securities Act.

The directors are defending allegations that the statements they issued concerning related party lending (to VTL), the quality of Nathans loan book, its loan management practices and its management of liquidity were untrue.

The commission claims the directors made untrue statements in the company's registered prospectus and investment statement of December 13, 2006, and in a signed prospectus extension certificate on March 30, 2007.

Yesterday , Hotchin admitted the company's prospectus and investment statement to December 13, 2006 were wrong, though he said at the time it was registered he believed them to be correct. Crown lawyer Colin Carruthers, QC, asked how this was possible, to which Hotchin replied: "I didn't show due care."

VTL, or Vending Technologies as it was previously known, developed smart technology for vending machines.

Nathans was mainly set up as a funding vehicle for VTL and its associated entities which purchased vending franchises from VTL.

Hotchin got the idea for the smart technology from when he worked as a consultant for Corporate Cabs.

The system worked from a remote- controlled motherboard that reported if an individual machine had a problem or needed to be restocked.

This was especially useful for schools as children often jammed objects into the machine or blocked the coin slot with chewing gum.

Hotchin said he and Doolan saw a huge global opportunity to roll the technology out.

"I thought Doolan was a bright, intelligent man. I wanted to do business with him. It dawned on us that there was a good opportunity."

But the relationship soured in 2005 to the point that the directors would only communicate through shadow director Gary Stevens, who Hotchin said was heavily involved in the company and even advanced loans.

Hotchin said there was an incredible amount of due diligence done on the company before it was taken to market by Craig and Co in 2000.

VLT listed on the New Zealand Stock Exchange and raised $7.5 million in capital; of that $5.5 million went to the company and the rest was lent to trusts associated with Doolan and Hotchin.

Hotchin said Doolan had fully disclosed this to the public and to the NZX through the company prospectus.

But Hotchin said in his personal experience, few investors read the prospectuses.

A trust of Doolan's borrowed some of the money and he put up shares and around $1 million in cash as security to the loan, and therefore there was a low risk exposure to Nathans, Hotchin said.

Hotchin said he had loaned money for a trust, that he is not the beneficiary of, and also put up shares and around $750,000 and the asset he used the money for as security to the loan.

Hotchin said he was concerned the interest on loans owed to Nathans by VTL was not being met. He added the other directors shared this concern.

Hotchin said yesterday he could see that VTL could not have been able to repay the loans on time.

When Nathans collapsed it owed $174 million to about 7000 investors.