Director found guilty in $1.8bn fraud case

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Is your board comprised of proactive team players, or is it dominated by ‘my way or the highway’-type thinkers?
If the latter rings true, take note – as it was an “ungovernable” leader that brought about the collapse of one of New Zealand’s largest finance companies, leading to $1.8bn fraud charges – the largest in the country’s history.

On Tuesday 14, Justice Paul Heath said South Canterbury Finance’s corporate governance practices, driven by its late chairman Allan Hubbard, directly contributed to the organisation’s collapse.
The judge found that the Crown’s case – based on South Canterbury’s consistent failure to disclose the true extent of related party lending between 2004 and 2010 – did not prove there had been an underlying culture of concealment at the finance company.
He also said he didn’t believe Hubbard, or any of the accused, set out to defraud investors.
However, in handing down his decision on 18 charges faced by the company’s former chief executive and two former directors, he found former director Edward Sullivan guilty of five of the nine charges brought against him, most of which involved making false statements in prospectuses.
Heath found that former chief executive Lachie McLeod and former director Robert White were cleared of all nine charges brought against them by the Serious Fraud Office.
In his judgement, Heath conceded that Hubbard had not had the opportunity to answer allegations made against him, as he died in a car crash in 2011.
That said, Heath criticised Hubbard’s business practices and said he found the former chairman’s antiquated, handwritten bookkeeping processes “astounding”.
“Unfortunately, the corporate governance practices that Hubbard insisted on maintaining, Hubbard’s view of the greater security of related party lending, the lack of transparency in publicly available documents about the extent and nature of such lending, and the inability of his co-directors to influence a change in his attitude directly contributed to the failure of the company and the losses suffered,” Heath said.
Sullivan is due to be sentenced on December 12.
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