The Serious Fraud Office (SFO) has completed its investigation of Hanover Finance Limited (HFL), bringing to an end its investigations into the 2007/2008 finance company collapses. That process, which saw SFO investigate 15 separate companies, resulted in criminal prosecutions in relation to nine companies. Overall, 23 individuals have faced charges laid by SFO.
The last of the investigations into HFL and related companies took 32 months.
SFO announced on April 30 that it will not proceed with criminal charges in this case.
Extensive probe
“This has been by far the most extensive and challenging of the finance company investigations undertaken by SFO,” Acting Chief Executive Simon McArley said.
Since September 2010, SFO has analysed more than 107,000 pages of documentary evidence and interrogated over 3730 gigabytes of electronic data.
Fifty-four interviews were conducted over 120 hours and more than 30 individual loans or other transactions of interest were identified and reconstructed. Overall, about 12,700 hours were spent analysing evidence and expert opinion advice was sought from external advisors.
Serious questions
SFO believes that serious questions arise relating to (a) the consistency between the overall view of the nature and financial condition of the companies disclosed to investors from December 2007 and the actual position of the companies (b) the solvency of the companies when dividends were paid during the six months immediately prior to the suspension of payments to depositors in July 2008 (3) the propriety of a number of transactions entered into in the three months immediately prior to the suspension of payments to depositors that appear to have provided little or no benefit to the companies, while conferring some significant benefits on the related parties and (4) the accuracy of the valuation of the companies’ assets in the financial statements supporting the Debt Repayment Proposal put to investors in November 2008.
However, for criminal charges to be successful, it is necessary to prove beyond reasonable doubt that these circumstances occurred and that they breached the companies’ legal obligations; and that identified individuals in control of the companies had knowledge of the circumstances and caused them to occur with dishonest intent.
Difficult task
According to Mr McArley, recent decisions relating to other failed finance companies have highlighted how difficult it is to satisfy this standard.
“SFO’s prosecution decisions must also be made within the context of the Solicitor-General’s Prosecution Guidelines (see separate story in this Section). These require me to be satisfied that there is a reasonable prospect based on credible and admissible evidence, that an impartial jury could be satisfied, beyond reasonable doubt, that the person prosecuted has committed a criminal offence. On the evidence currently available, SFO is not able to reach that threshold. As a result it is unable to commence any criminal charges in relation to Hanover Finance and its related companies,” he said.
He said that SFO remained open to reconsider its decision if fresh evidence as to the actual knowledge and intent of those in control of the company becomes available.
“While many may view the conduct that occurred at Hanover Finance as egregious, that alone is not sufficient for me to commence a prosecution,” he said.
“This is a case that has attracted huge public attention and is of significant public interest. I believe that this justifies the vast time and resources that SFO has dedicated to it. However, we have now exhausted every available avenue of enquiry and the time has come to move on and focus our resources elsewhere.”
The background
HFL and United Finance Limited announced on 23 July 2008 that they would be unable to meet their obligations to depositors and were proposing to put a debt-rescheduling proposal to depositors.
At that time, the companies owed a substantial amount to secured creditors and unsecured note holders. A formal proposal was put to depositors in November 2008 and accepted by the required majority in December 2008.
Both companies were ultimately subsidiaries of Hanover Group Holdings Limited.
In November 2009, both companies entered into an agreement to sell their financial assets to Allied Farmers Limited. That transaction was completed in December 2009, when depositors agreed to accept equity securities issued by Allied Farmers in exchange for the amounts owed to them by the companies.
After considering complaints received from the Securities Commission, Allied Farmers and others, the Director determined that an investigation into the affairs of HFL may disclose serious or complex fraud.
An investigation under Part I of the Serious Fraud Office Act was commenced on September 7, 2010.
Following the collection of further information, the Director determined that there was reasonable evidence to believe an offence involving serious or complex fraud may have been completed.
The investigation was upgraded to a Part II investigation on November 18, 2010.
Source: Serious Fraud Office, New Zealand
