The High Court has handed down its decision on the penalties to be imposed on three of the directors of Nathans Finance Limited: R v Moses (High Court, Auckland, CRI 2009-004-1388, 2 September 2011). In an earlier decision, the High Court had found that the directors had contravened section 58 of the Securities Act 1978 on several counts associated with the distribution of prospectuses and advertisements containing untrue statements about Nathans' business and its actual financial position. For a detailed analysis of this decision see our earlier article: Further clarity for directors' duties: The Moses case and the Steigrad case (aka Nathans and Bridgecorp).
In summary, Justice Heath sentenced:
- Mr Young, who the judge regarded as the least culpable of the four directors, to a period of 9 months home detention, 300 hours community work and payment of reparation in the sum of $310,000;
- Mr Moses, chairman of Nathans Finance, to a term of imprisonment of 2 years and 2 months and ordered him to pay reparation in the sum of $425,000; and
- Mr Doolan, whose culpability was considered by the judge to be slightly greater than that of Mr Moses, given his oversight of the management committee, company finances and his more direct involvement in the day-to-day management and operations of the companies, to 2 years 4 months imprisonment, together with a reparation order of $150,000.
Under the Securities Act, the maximum penalty for each of the offences committed by the directors is a period of five years imprisonment or a fine not exceeding $300,000.
The key factors Justice Heath took into account in considering the penalties to be imposed on the directors included the seriousness of the offences (which Justice Heath concluded fell within the gross negligence category) and the need for general deterrence.
Justice Heath observed in the course of extensive reasons for his decision that the following aspects of the directors' performance were particularly troubling to him:
- their failure to consider, in any meaningful way, whether the prospectus and investment statements conveyed materially accurate information to investors that was required for the investor to make a proper decision about investment risks;
- their undue reliance on professionals and senior management personnel, to the extent that their functions and responsibilities of directors in determining whether the prospectus and investment statement conveyed accurate information was seemingly abdicated; and
- their apparent belief that there was nothing wrong in using moneys solicited from members of the public for the purpose of Nathans Finance' business being diverted to the parent company to allow it to honour a guarantee given to another VTL Group Limited finance company (although this did not form part of the charges which came to light during evidence).
In an earlier decision the fourth director, John Hotchin, was sentenced to 11 months home detention, ordered to do 200 hours community work and pay $200,000 reparation after pleading guilty to the charges against him.
The Court of Appeal has dismissed both Mr Moses' and Mr Doolan's appeals from their sentences.