The Queen v Rodney Michael Petricevic Cornelis Robert Roest Peter David Steigrad

JurisdictionNew Zealand
CourtHigh Court
JudgeVENNING J
Judgment Date05 April 2012
Neutral Citation[2012] NZHC 665
Docket NumberCRI-2008-004-029179
Date05 April 2012

[2012] NZHC 665

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI-2008-004-029179

The Queen
and
Rodney Michael Petricevic Cornelis Robert Roest Peter David Steigrad
Appearances:

B Dickey, W Cathcart and T Molloy for Crown

C B Cato for Mr Petricevic

P Dacre and R Butler for Mr Roest

B Keene QC, M E Cole, S Nicolson and J F Anderson for Mr Steigrad

Reasons for guilty verdicts — accused were directors of failed finance company Bridgecorp — charged with offences under s242 Crimes Act 1961 (false statement by a promoter), s377(2) Companies Act 1993 (false statements) and s58(3) Securities Act 1978 (criminal liability for misstatement in registered prospectus) — alleged false statements made in prospectus — whether accused had knowledge of false statements — whether an omission was a false statement — whether accused entitled to rely on advisors — director's duties.

The issues were: whether the accused were guilty of offences under s242 Crimes Act (false statement by a promoter), s377(2) Companies Act (false statements) and s58 SA (criminal liability for misstatement in registered prospectus) and whether they were entitled to rely on the advice of others.

Held: Under s242 Crimes Act, the Crown had to prove all three made or concurred in making or publishing the prospectuses, directors certificate and investment statements, that they knew or were reckless to the fact they were false, and the accused had intended to induce any person to subscribe to Bridgecorp or BIL. P had signed the director's certificate on behalf of the directors. The statements were false in that Bridgecorp and BIL had missed interest payments and repayments of principal to debenture holders. The missed payments were generally known with senior management and around the office. It was inconceivable the accused would not have known of this.

The statements had been made to induce persons to subscribe to a security in Bridgecorp. While the statements may have been true when originally made, the accused should have withdrawn the prospectus once they became false. Section 34(1) SA (restrictions on distribution of prospectuses) provided that no registered prospectus shall be distributed if it was false or misleading in a material particular. As directors, if they were aware the statement in the prospectus had become false, they had a positive obligation to correct the false or misleading prospectus by amending that statement or by withdrawing the prospectus.

Under s58(3) SA the Crown had to prove beyond reasonable doubt that one or more of the statements in the Bridgecorp prospectus were untrue, that it was distributed and that the accused had signed the Bridgecorp prospectus, or had it signed on his behalf. In relation to the missed payments by Bridgecorp, BIL and related companies, the Crown alleged the prospectus had not set out the true position. Where there was not an express statement, s55 SA (interpretation of provisions relating to prospectuses) confirmed that a statement could be untrue by reason of an omission. The omission related to the statement, but it did not replace the requirement for a statement in the first place. It was not an offence to omit something from the prospectus unless that omission made a statement in the prospectus untrue.

Further, while s55(b) SA deemed a number of statements to be included in the offer documents if they appeared elsewhere they must, to be included, appear elsewhere in the source documents referred to in s55(b) SA. The only reference to the financial position in the prospectus was to accounts. Given that s58 SA created a criminal offence of strict liability, any ambiguity as to what was required ought to be construed against the Crown. The particular in the indictment was that Bridgecorp's financial position was as set out in the registered prospectus. The Crown was not able to rely on a general proposition as a basis for alleging that the general proposition was misleading because it contained an omission, if the omission related to a deterioration after the date of the accounts which set out the financial position as at a certain date. Therefore the Crown could not prove beyond reasonable doubt that the prospectus contained an untrue statement contained when it was distributed between 21 December 2006 and 7 February 2007.

The question of whether a director had an honest belief, based on reasonable grounds had two components, one subjective and one objective. In assessing whether a belief was based on reasonable grounds, the position of each director (against the background of that director's role and duties) could be judged by reference to the information available to that director during the relevant period leading up to the distribution of the prospectus containing the untrue statements. All of the accused argued that they had relied on management and outside agencies. They referred to the line by line due diligence and management reports to the board prior to the execution of the prospectus, and the involvement of the auditors and external solicitors.

Directors had a non-delegable duty to form their own opinions on the issues as to whether the prospectus contained untrue statements. They had an obligation to review the material before them, and satisfy themselves whether the information in the prospectus would present a notional investor an accurate impression of the state of Bridgecorp at the relevant time. Both s2B SA (meaning of due enquiry) and s138 Companies Act (use of information and advice) recognised that at times directors must rely on others for the provision of information, but they also envisaged the possibility of the need for further inquiry by a director. Directors were not relived of their obligation to check or question the advice of management where they had other information that should put them on inquiry.

P could not reasonably have believed the statements were true and had enough information to place him on notice to make further inquiries. R was also aware of the issue and had not produced enough evidence to support his defence that the auditor (on whom he alleged he relied upon) had all the relevant information. S was a non-executive director based in Australia. While he sat on the audit committee and board he was not a member of the executive or any other working committee. The information he received was generally limited to the information in the audit and board packs. The summarised information S had received had not contained any particular triggers to have put S on inquiry and S was entitled to rely on the information from the finance director, R, concerning the related loans.

However with regard to count that the prospectus had not reflected the adverse financial position, S should have been on inquiry and should have realised he needed to find out what Bridegcorp's exact financial position was. Statements that Bridgecorp's financial position had not adversely changed were contained in the extension certificate and as such were included in the prospectus. Where the extension of a prospectus was contemplated by the board, directors were obligated to make due inquiry pursuant to s37A(1A) SA (voidable irregular allotments - in the opinion of all directors of the issuer after due enquiry, the financial position shown in the statement of financial position has not materially and adversely changed). The directors did not have reasonable grounds to believe that the untrue statements in the extension certificate were true.

P and R were found guilty on charges of distributing a prospectus, and terms investments prospectus, signing a director's certificate and extension certificate for Bridgecorp and BIL that contained untrue statements. S was found guilty on counts of distributing a prospectus and investment statement for Bridgecorp and BIL that contained untrue statements for specific dates. They were not guilty on charges of distributing a term investments prospectus, distributing a capital notes prospectus for BIL containing an untrue statement and distributing an investment statement relating to Bridgecorp' s term investments and BIL's capital notes investment statement that contained untrue statements.

REASONS FOR VERDICTS OF VENNING J
Table of Contents

Para No

Summary

[1]

Judge alone trial

[6]

General background

[10]

Legal considerations

[28]

Prejudice/sympathy

[33]

Lies

[34]

Expert evidence

[37]

The position of the co-accused

[40]

The charges

[42]

Count 1 — Section 242 Crimes Act 1961 — False statement by a promoter etc .

[45]

Count 1 — Mr Petricevic

[49]

Count 1 — Mr Roest

[85]

Count 2 — Section 242 Crimes Act 1961 — False statement by a promoter etc.

[100]

Count 2 — Mr Petricevic

[106]

The 31 March interest run

[108]

Count 2 — Mr Roest

[142]

Count 3 — Section 242 Crimes Act 1961 — False statement by a promoter etc.

[149]

Count 4 — Section 242 Crimes Act 1961 — False statement by a promoter etc.

[155]

Count 5-Section 242 Crimes Act 1961 — False statement by a promoter etc.

[166]

Count 6 — Section 242 Crimes Act 1961 — False statement by a promoter etc.

[173]

Count 7 — Section 377(2) Companies Act 1993 — false statements

[178]

Count 8 — Section 377(2) Companies Act 1993 — false statements

[189]

Count 9 — Section 58(3) Securities Act 1978 — criminal liability for misstatement in registered prospectus

[198]

Particular (a): That Bridgecorp would/did not provide credit or advance loans other than in accordance with good commercial practice and internal credit approval policies

[232]

(i) Kinloch/Bendemeer

[238]

(ii) Dhuez/Akau

[243]

(iii) Myers Park Apartments Ltd

[250]

(iv) Victoria Quarter Depot Site

[252]

(v) Gateway to Queensland Real Estate (NZ) Ltd

[25...

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