The receivers of a failed finance company have won an $8.6 million judgment against a former director of the company and a terminally ill property developer but the High Court declined to award compound interest on this amount.
Belgrave's 2008 collapse left more than 1200 investors $22 million out of pocket. Investors have got back 17.4c in the dollar of their principal, according to the latest receivers' report.
A lawyer for Belgrave's receivers, Michael Arthur, told the High Court at Auckland earlier this month that the firm's former director, Shane Buckley, breached his duties to the company by facilitating related-party loans.
Arthur said between August 2005 and May 2008 numerous advances were made from Belgrave to interests associated with property developer Raymond Tasman Schofield, who in substance was the finance company's ultimate owner.
Arthur said these loans breached restrictions in Belgrave's trust deed, which dictates the rules on how investor funds are to be dealt with.
These loans were not arms-length and outside the terms of Belgrave's lending policy, Arthur said.
As well as its claim against Buckley, the company alleges Schofield dishonestly assisted with the director's breach of duties.
The pair's actions caused losses of $8.6 million for which Belgrave is seeking judgment against Buckley and Schofield, Arthur said.
In his judgement, released publicly to the media today, Justice John Fogarty said Schofield went to "great detail" to hide his involvement in the company.
"The fact that he was making attempts to conceal his role shows that he knew that what he was doing was dishonest. I find Mr Schofield knew that the Schofield loans breached the trust deed; that Mr Schofield structured the acquisition of Belgrave's shares so as to avoid detection of the related party lending restrictions applying to him and the entities associated with him. He participated in concealing the related lending scheme... The lenders to Belgrave are the victims of his dishonest conduct," the judge said.
Turning to Buckley, Justice Fogarty said the former director failed to carry out his duties in Belgrave's best interests.
" I have also found that he was one of Mr Schofield's men. He was put in his position of power in order to serve the interests of Mr Schofield, in breach of the law," the judge said.
He entered judgment against both Schofield and Buckley for the $8.6 million.
While the receivers also sought compound interest of $6.29 million - bringing the total claim against Buckley and Schofield to almost $15 million - Justice Fogarty only awarded simply interest on this sum.
Buckley was jailed for three years in 2012 after pleading guilty to more than 20 charges brought by the Serious Fraud Office and the Financial Markets Authority.
Schofield was charged by these authorities but in December 2012 was granted a stay on prosecution because of a terminal illness.
Neither Buckley nor Schofield were represented in court during the hearing with the receivers.
The receivers had also targeted former Belgrave director Stephen Smith in their claim but he was declared bankrupt in September 2011. Smith pleaded guilty to SFO and FMA charges and was sentenced to four years in prison in 2013.