Published 2 February 2011
Insured Group Ltd – the former Lombard Group Ltd – beat the Securities Commission to the gun yesterday, issuing a release complaining that the commission was issuing proceedings relating to the company’s former ownership. Hours later, the commission put out its own release, without acknowledging the change of ownership.
Perth-based Australian Consolidated Insurance Ltd completed the reverse takeover of NZX-listed Lombard Group Ltd last year, under which existing Lombard shareholders received an interest in an unlisted vehicle, equal to their interest in Lombard, that contained Lombard’s residual assets. Australian Consolidated, founded by Wayne Miller in 2005, shifted its businesses into the listed company and took control of 98.5% of Lombard, renaming it Insured.
The reverse takeover offer came in 2009 as Lombard faced suspension by NZ for not presenting its annual report on time. Lombard itself used Pure NZ Ltd to achieve a backdoor listing in 2005, and Pure NZ director Dave Wallace stayed on with the new entity. His fellow directors were 2 former Cabinet ministers, Sir Douglas Graham as independent chairman & Bill Jeffries as an independent director, and PR company director Laurie Bryant. Chief executive Michael Reeves also became a director.
Through the reverse takeover, that NZ-incorporated company was removed from the New Zealand register in April 2010 and the incorporation was shifted to Perth. “It operates in the insurance sector and its current shareholders are almost entirely Australians who did not own Lombard Group at the material time” the new Insured said in its complaining release yesterday.”
As that was happening, the Securities Commission got civil proceedings underway against Sir Douglas Graham, Mr Jeffries, Mr Bryant & Mr Reeves. After further investigation, the commission added the company to the proceedings yesterday, alleging breaches of its continuous disclosure obligations.
Insured Group said in its release: “The company understands the allegations relate to an alleged failure in early 2008 for the company to adequately disclose the impact on the company of the financial position of its then subsidiary, Lombard Finance & Investments Ltd. The company understands the Securities Commission is seeking, among other things, orders that the company pays the Crown a pecuniary penalty (which due to the change in the relevant statutory provisions during the relevant period is expressed to amount to up to a maximum of $1.3 million).” Mr Miller added: “At the time of the reverse takeover offer in 2009 & 2010 I had not received any notice from the Securities Commission regarding potential continuous disclosure proceedings in relation to Lombard Group. Insured Group in its current form has had nothing to do with the 2008 business position of Lombard Finance & Investments or Lombard Group. “It is extraordinary that the Securities Commission has never discussed this matter with us, nor provided details of the allegations beforehand so we might have an opportunity to respond before the Securities Commission took the court action that it has. I am advised that, even where there is a case to answer, the remedies the Securities Commission is seeking are discretionary and I simply cannot understand how a court would seek to penalise the current Australian owners of the company. The Securities Commission must have been well aware of the significant transformation of our company created by the reverse takeover offer and has waited almost 3 years to take action which could potentially penalise the current Australian owners. “The group’s assets today have no connection with the finance company operation in 2008. The residual assets of the company from the period during which Lombard Finance & Investments was a subsidiary were excluded from the reverse takeover transaction in 2010 and were transferred to a newly formed company (First One Holdings Ltd) owned by the original Lombard Group shareholders in the same proportion as their then shareholding in Lombard Group. “The Securities Commission has already taken different proceedings in relation to Lombard Finance & Investments’ operations (which are still to be heard) so we cannot understand why it is taking this particular action now some 3 years after the relevant events occurred and when the changes to the company effected by the reverse takeover were fully advised to New Zealand regulators last year before the company migrated its place of incorporation to Australia. This does little to engender confidence in the New Zealand capital markets, which is particularly disappointing for us as a company that sought to be listed in New Zealand, in contrast to the developing trend of companies leaving the NZX for other exchanges.” Mr Miller said the commission’s action only concerned the parent company, not its operating subsidiaries in Australia. The commission said it had begun civil proceedings alleging breaches of the continuous disclosure provisions of the Securities Markets Act in 2007 & 2008.
Investigations & litigation director Sue Brown said: “The breaches relate to the company’s failure to disclose information to the market, such as loan book quality & liquidity, regarding the performance of its finance company subsidiary, Lombard Finance & Investments. The information the company failed to disclose was material as Lombard Finance & Investments constituted a major part of Lombard Group’s business, and Lombard Group was financially dependent on its subsidiary.
"Compliance by listed companies with their continuous disclosure obligations is vital to the integrity of the capital markets. The commission therefore considered this case warranted the current proceedings."
When Lombard Finance & Investments went into receivership in 2008, it owed $127 million to 4400 investors. They’ve got back 9.5c:$1 so far, and the latest report by the receivers, on 21 December, indicates that if the whole Inland Revenue claim is accepted the investors’ total return is likely to be in the range of 11-20c:$1.
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Attribution: Company & commission releases, Companies Office records, story written by Bob Dey for the Bob Dey Property Report.