New Zealand Financial Markets Authority Files Civil Proceedings Against CBL, Its Directors and CFO


Tuesday, December 17, 2019  / 03:26AM /  By NZ FMA  /   Header Image Credit: Finance Magnates 


The FMA has issued two sets of civil proceedings in the Auckland High Court against CBL Corporation Limited (In liquidation) (CBLC), the six directors and the chief financial officer alleging multiple breaches of the Financial Markets Conduct Act 2013 ("FMC Act"). The FMA is seeking declarations of contravention 1 and civil pecuniary penalties in both proceedings.


CBL was listed on the NZX main board in 2015. It had a market capitalisation of $747 million, and a share price of $3.17, when it went into suspension from trading in February 2018. The company was put into voluntary administration in February 2018, and then placed in liquidation in May 2019.


The FMA had established these regulatory objectives in pursuing this case:

  • sending an important denunciation and deterrence message where misconduct is identified in an area of strategic importance to New Zealand's financial markets;

  • Holding to account those considered most culpable for any identified misconduct, e.g. directors or management;

  • Clarifying the law and provide important legal precedent for future actions.


Based on these objectives the following proceedings have been filed.


The first proceeding concerns alleged breaches of the FMC Act in relation to disclosures by CBLC as part of its Initial Public Offering in September 2015, namely:

  1. failure to disclose related party transactions; and
  2. false and/or misleading statements in respect of solvency ratios and the use of the IPO proceeds.


The defendants to this proceeding are CBLC, directors Peter Harris and Alistair Hutchison, and CFO Carden Mulholland.


The second proceeding concerns alleged breaches of the FMC Act, namely:

  1. failure to comply with continuous disclosure obligations in respect of:
    1. the need to strengthen CBLI's reserves;
    2. aged SFS premium receivables following the acquisition of SFS; and
    3. directions issued to, and conditions imposed on, CBL Insurance Europe dac (CBLIE) by the Central Bank of Ireland (Central Bank); and
  1. misleading and deceptive conduct and/or unsubstantiated representations in trade in respect of CBLC's market announcement on 24 August 2017.


The defendants to this proceeding are CBLC, and its directors Sir John Wells, Peter Harris, Anthony Hannon, Norman Donaldson, Ian Marsh, Alistair Hutchison and the CFO, Carden Mulholland.


Nick Kynoch, FMA General Counsel, said, "Our key statutory objective is to promote and facilitate the development of fair, efficient and transparent financial markets. There will be corporate failures in a well-functioning market, however the size and circumstances of CBL's collapse threaten our overarching objective. Because of this we conducted a significant and complex investigation into CBL's failure.


"We have identified a number of areas of potential misconduct by CBL and its directors and considered a range of potential enforcement actions against the backdrop of our regulatory objectives. We are also mindful of bringing an appropriately targeted and manageable case. The proceedings filed today address these objectives.


"We also acknowledge the two litigation-funded class actions filed by investors against CBL, which are primarily aimed at securing compensation for investors. The FMA will engage with investors and the courts to manage the various proceedings now in progress.


"Investors exercising their own legal rights and pursuing privately funded litigation plays an important part in a well-functioning market, which the FMA strongly supports. However private civil litigation may not always address areas of broader public interest that are of concern to the FMA."



The FMA's two sets of civil proceedings have been drafted separately for ease of understanding, as each one relates to different underlying facts and different time periods. The FMA proposes that the two proceedings be heard together.


[1] Proceedings where declarations of contravention and penalties are sought will, if granted, provide the ability for individual claimants to seek compensation in reliance on the declarations of contraventions (which will have been established by the FMA proceedings).


The maximum amount of a pecuniary penalty for a contravention, or involvement in a contravention, of a civil liability provision is likely to be $1 million in the case of a contravention, or involvement in a contravention, by an individual or $5 million in any other case.


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