Justice Venning has recently delivered his verdict in the Bridgecorp trial, finding directors Rod Petricevic, Robert Roest and Peter Steigrad guilty of various offences under the Securities Act 1978, the Crimes Act 1961 and the Companies Act 1993 in relation to untrue or false statements in disclosure documents and directors' certificates. Petricevic has been sentenced to six and a half years imprisonment for his offending, being the longest sentence for the finance company cases so far. The full decision can be found here.
As a general comment, the court's approach in this case is broadly in line with and adopts much of the reasoning in recent decisions on similar finance company failures, such as R v Moses (concerning Nathans Finance) and R v Graham (concerning Lombard Finance). Previous updates outlining the findings of those cases are available here and here respectively.
In addition to adopting much of the reasoning followed in those cases, Justice Venning further clarified/commented on the following factors:
- The court adopted the "notional investor" test from R v Moses as the perspective from which to determine whether a statement will be considered to be misleading. In particular, unlike the Court in R v Graham, Justice Venning thought the "notional investor" is someone who would get appropriate advice if he or she were unable to understand any material aspect of a disclosure document (including financial statements).
- Justice Venning confirmed that, while representations in a disclosure document are continuing in nature (i.e. that they do not just need to be true on the day the offer document is signed by the directors or registered, but must continue to be true so long as the offer is in the public arena), the Crown must nevertheless identify an event or events which trigger the requirement to amend the document. In the present case (and, again, unlike in R v Graham), the Crown had articulated key milestones within the alleged date ranges for the offences as triggering that requirement, establishing the offence.
- The Court reiterated that the involvement of outside agencies does not absolve directors from compliance with their own non-delegable duties, commenting that:
As Dobson J put it in R v Graham, where the company retained competent outside advisers, respected their views and completed the offer documents without those advisers raising any relevant concerns it will be easier ... for the accused to make out reasonable belief. It is not, however, sufficiently material to establish a basis for such reasonable belief if that belief did not independently exist. I would be prepared to drop the qualifier, “marginally”, but the point remains, there must be an objective basis for the independent belief in the first instance." (at ).
Thus, "the directors are not relieved of their obligation to check or question the advice of management where they have other information that should put them on inquiry" (at ). Applying this to the facts, His Honour held that, for some time, the information received by Steigrad (a non-executive director based in Australia) "did not contain any particular triggers" to have put him on inquiry (at ). However, there was a "tipping point when all the information Mr Steigrad had would have put a reasonable director on inquiry" (at ). This illustrates the importance of directors keeping abreast of the information they receive.
- Venning J held that, it is not an offence to omit something from an offer document unless that omission makes a statement in the offer document untrue or misleading (at ). On the facts, the omission to disclose an alleged deterioration in financial position since the financial statements included in the offer documents did not support an offence because no statement was identified that would have become misleading or untrue as a result of that omission.
On a related note, we understand that the directors of Lombard Finance have indicated that they will appeal the decision in R v Graham, but it is unclear whether the directors in this case will do so as well.