Mutual, Viaduct failures were ‘commercial daring, not fraud’, court hears

Property developer Paul Bublitz didn't devise for his own benefit a plan to move illiquid assets out of his company, Hunter Capital Group, and into finance company Viaduct Capital, his counsel Rachael Reed told the High Court at Auckland this morning.

Defence counsel began their opening addresses in the second day of a 12-week trial where Bublitz and his co-accused, Bruce McKay, Richard Blackwood, and Lance Morrison, have pleaded not guilty to charges laid by the Financial Markets Authority relating to the collapse of two finance companies, Viaduct Capital and Mutual Finance. The charges include theft by a person in a special relationship, making false statements in a prospectus, and making false statements to a trustee.

The Crown yesterday claimed investors in the two failed finance companies, which went under in 2010 owing around $17 million, were misled over related party transactions designed to get Bublitz's property company out of financial strife. It accused Bublitz, the founder of another property finance company Strategic Finance, and his alleged co-conspirators of deliberately misleading investors and potential investors for their direct benefit and to the detriment of the companies. The Treasury is also said to have been misled through its extension of assistance to the finance companies through the Crown retail deposit guarantee scheme.

Reed told the court that there was no conspiracy and that Viaduct and later Mutual Finance are examples of "proper commercial evolution at play in a difficult financial market". The failure of the two companies doesn't rest on related party transactions; rather the fact Bublitz put his own assets into Viaduct and lost some $5 million to $6 million shows he didn't misuse those companies to benefit himself or Hunter Capital, she said.

"This is a case of commercial daring, not fraud," Reed said.

Bublitz and the late Nick Wevers recognised in 2008 there was an opportunity in the market to buy, fund, or develop property when others could not do so for lack of funding after the global financial crisis. The pair targeted a Crown guaranteed finance company because "spooked investors would not risk their funds on finance companies in the wake of the collapse of many such companies", Reed said.

There was no secrecy about the plan and the structure the pair used to buy Viaduct, then named Priority, followed top-shelf advice from experts in auditing and securities law in the form of accounting firm BDO and legal firm DLA Philips Fox, she said. In any commercial deal, details and stakes of the parties involved change for any number of reasons and that is what happened here. As a related party, Hunter Capital was not able to sell assets into Viaduct to fund its purchase, Reed said.

"The result is an entity that is structured to accord with advice and operate within the regulatory environment in the best manner in which it can in order to legally, commercially, and responsibly pursue available business opportunities."

Hunter Capital assets were sold in at prices that PwC, engaged on behalf of the Crown before it withdrew the deposit guarantee, found were on the whole "not unreasonable" and were not sold above value to extract cash for Hunter Capital, she said.

Evidence throughout the early stages of a deal that a commercial structure was altered in accordance with advice from reputable advisers shows the parties involved are striving to comply with regulatory requirements, not to avoid them, Reed said.

"This is where the first and fundamental gap arises between the Crown and defence. The Crown misconstrues the natural progression of a commercial deal and alteration of the resulting entity's structure to meet regulatory requirements as being nefarious when it is in fact evidence of the parties' commitment to abide by and respect the regulatory requirements."

BDO also gave legal advice that Bublitz was not key management personnel of Viaduct and therefore no related party transactions took place, she said. The Crown yesterday said Bublitz received a $240,000 annual fee as a management consultant to Viaduct, the same as Wevers earned as chief executive.

Bublitz was transparent about Hunter Capital's and his involvement with Mutual and, as a director, corresponded with Treasury and the trustee, she said.

Reed said Wevers and McKay were also not key management personnel of Hunter Capital and had no ability to control its activities.

McKay, a director of Viaduct and a chartered accountant formerly on the board of the Institute of Financial Professionals (INFINZ), denies being a party to any conspiracy or that he was aware of the relationship between Wevers, Bublitz, Hunter Capital and Phoenix, the shelf company used to buy Viaduct, said his counsel Greg Bradford.

The Crown alleged McKay failed to disclose to advisers the relationship between the parties and the content of discussion about Hunter Capital taking a shareholding in Phoenix.

But Bradford said to the best of McKay's knowledge, he fully and fairly informed the advisers of what he knew about the proposed transactions and who was involved.

(BusinessDesk)

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