I have to be a little careful with this blog. My motivation for going to digital print on this topic is altruistic. Recently, the mainstream media have once again reported that yet another settlement has been reached by the receivers of a failed finance company (this time Strategic Finance) with the investors having no input and simply being left to accept the outcome. The investors, as reported by the media, complain that they have not been consulted with and have no idea how or why the receivers have settled the claims of the company, with the settlement resulting in 5 cents in the dollar for the investors. Below are some general observations:
Aspects of the above might be regarded, by some, as controversial. The additional general observations below may also be regarded as controversial:
I would expect a failed finance company investor to say “Chris thanks for the above and now that we are aware a pathway exists, how do we go down that pathway?” I like to keep things simple. So in simple terms this is what you do in respect of the first pathway (there is actually two):
Someone, perhaps the lawyers acting for the defendant director(s), might point out that any money paid by a director or his\her insurer will end up going to the secured creditors, so why would an unsecured creditor bother? Well, the answer is simply that a receiver would be in breach of their obligation of good faith if they failed to agree with the unsecured creditors, to allow them to keep all or some of any recovery obtained from their claim against the director(s), given that the receiver had already reached a settlement with the director(s). A receiver who has settled with the director(s) no longer has any interest in pursuing the directors. A receiver, in those circumstances, cannot, as a matter of good faith stand in the way of the unsecured creditors seeking to recover some of their losses or simply seeking the satisfaction of bankrupting the individuals responsible for the loss of their (the investors) hard earned money. It can be an arguable line between incompetence and theft. The law must provide a remedy to all wrongs. Otherwise, why should we be surprised when the victims take matters into their own hands? What has surprised me is how forgiving the investing public has been towards a number of company directors. Mark Byers springs to mind. The reason for the apathy of investors might, in part, be due to the State being willing to underwrite some of those losses via the Retail Deposit Guarantee Scheme. Not that Blue Chip was part of the tax payer paid scheme that allowed those who were chasing high returns to keep both the interest payments they received but also to be reimbursed for their investments when it all went sour. Another reason is ignorance. This blog seeks to overcome that reason, in part. There must be more than a few company directors breathing easy knowing that:
The failure of a large number of New Zealand’s second tier financial institutions wiped several billion out of our economy. Some might say that investors got what they deserved. However, when the State intervened it resulted in tax payers money being used to help clean up the mess. Money, which could have been used to save lives through hospitals or to educate our children and grandchildren. Have all of those responsible paid their fair share? I do not think so. Has the insolvency industry or the State held them fully accountable? Ask the investors who have lost their life savings.
By Chris Patterson, 2014
By Chris Patterson