The Court of Appeal has upheld the convictions of the former directors of Lombard Finance and Investments Ltd (Lombard Finance) on charges laid under the Securities Act 1978 following the collapse of the company in April 2008, and has also increased their sentences.


Last year, the High Court found the directors of Lombard Finance guilty on charges arising from untrue statements made in offer documents issued by Lombard Finance leading up to its receivership in April 2008. Justice Dobson found the directors guilty in relation to one particular – the offer documents' description of Lombard Finance's liquidity risk. The documents described that risk conditionally – that is, if the company failed to manage its liquidity, problems could arise – but did not express a concern about an existing liquidity risk. Further details of this decision are set out in our earlier article: The Lombard verdict: important lessons for directors.

In the Court of Appeal the directors argued that there was no support for Justice Dobson's finding that the statements in the prospectus were untrue and further that Justice Dobson was wrong to dismiss their defence under section 58(4) of the Securities Act. Section 58(4) provides directors with a defence where they believe, and have reasonable grounds to believe, that the statements in a prospectus are true.

Court of Appeal's decision

The Court of Appeal disagreed with both arguments ruling that the High Court's verdicts were open on the evidence and Justice Dobson could reasonably have been satisfied of the directors' guilt (see Jefferies v R [2013] NZCA 188). With regards to the section 58(4) defence the court noted that:

"Given the [directors'] own knowledge of the critical state of Lombard's liquidity, neither reliance on the views of the company's executives nor the advice of professionals could avail the [directors]. It was open to the Judge to conclude they could not have had reasonable grounds to believe that their expressions of confidence in the company's liquidity were true without reference to the omitted matters which demonstrated clearly the vulnerable state the company was in. Nor could they have reasonably relied on the advice and assurances of management in the circumstances. That is because of the non-delegable nature of the duty imposed by [section] 58 and because the ultimate responsibility to govern and manage the company is theirs."

For further commentary on the Court of Appeal's decision see an earlier client update here.

Increased sentences on cross-appeal 

The Crown also brought a cross-appeal, arguing that the sentences that Justice Dobson imposed on the directors were "manifestly inadequate". The Crown asked the Court of Appeal to substitute sentences comprising a combination of home detention and community work. The court agreed and held that Justice Dobson had erred by adopting a starting point for sentencing which was short of imprisonment. In a subsequent decision (see Jeffries v R [2013] NZCA 274) the Court of Appeal substituted the sentences of community work imposed by the High Court with combined sentences of community work and home detention (ranging from six months to nine months for each director).

Leave to appeal to Supreme Court now sought

The directors have since filed an application for leave with the Supreme Court to appeal both the Court of Appeal's decision dismissing their appeal against conviction and the decision allowing the Crown's cross-appeal against their non-custodial sentence.