Report from BusinessDesk
Former Lombard Finance directors Sir Doug Graham, Bill Jeffries, Lawrie Bryant and Michael Reeves began their attempt to reclaim their reputations in the Court of Appeal in Wellington today, saying they couldn’t have foreseen the ‘perfect storm’ that engulfed finance companies starting in early 2008.
All four were in court in Wellington, accompanied by family members, to hear their lawyer Jim Farmer QC begin his case. The hearing is set down for four days though that includes one day for the Crown to appeal against the sentences handed down.
The four avoided the jail term the Crown had sought and were sentenced to community service in March last year after being found guilty of making untrue statements in investment documents and advertisements in late 2007 and early 2008. At sentencing, Justice Robert Dobson said the damage to the men’s reputation of a criminal conviction couldn’t be underestimated.
Farmer argued today that projections the Lombard board had in signing off on the prospectus in late 2007 gave them some confidence the finance sector climate could improve and that in any case the prospectus did broadly outline the key risks for investors. Those included being a lender on terms outside the parameters of retail banks.
That included the risk Lombard would not be able to repay its borrowing obligations in the event of an extreme loss of confidence in the sector.
“The unforeseen and dramatic change in February 2008 reflects the risk,” Farmer said. “The extreme event, the perfect storm arrived.”
The 4,400 Lombard Finance investors were owed $127 million at the time of the receivership in April 2008. The failed company’s major asset was a property loan book of 27 loans with a book value of $136.8 million, mostly for bare land subdivisions or development properties. Of the 27, only nine were first ranking security.
Finance company failures began in 2006 and the following year big names including Bridgecorp, Nathans Finance, Geneva Finance and Capital + Merchant had joined the list.
Still, 2008 was to yield even greater carnage, with 22 finance companies failing or going into moratorium.
Justice Anthony Randerson asked Farmer to provide a full time-line of industry failures and asked whether he viewed the failures of Bridgecorp and Nathans in 2007 as being well known in the market place.
“If anything, the reinvestment rate remained very strong up until the time of the prospectus even though there was concern about finance company collapses,” Farmer said.
At the sentencing last year Justice Dobson said the offending of the Lombard investors was serious but not of the same magnitude of those involved in Bridgecorp or Nathans Finance.
Sir Doug told BusinessDesk at the break that there has been something of a baying for blood with finance company directors, with few if any escaping censure. He said the media hadn’t helped with its salacious portrayal of the Lombard directors.
Graham and Bryant each received 300 hours community service and were required to pay $100,000 each in reparation, while Jeffries and Reeves were sentenced to 400 hours community service.