Potential law breaches at CBL, says FMA

The Financial Markets Authority says it has concerns about potential breaches of the Companies Act and Financial Markets Conduct Act by insurer CBL, as well as about the performance of its auditor Deloitte.

In a statement issued today the FMA said it had decided to provide an update on its investigation into CBL because of investor interest.

It said its preliminary assessment revealed concerns about:

• disclosures made as part of the initial public offer;

• continuous disclosure, in particular for matters which arose from mid-2017;

• financial reporting; and

• directors' duties.

“Given the FMA’s mandate in auditor oversight, the FMA is also considering the performance of the auditor, Deloitte,” it said.

The FMA did not say what it plans to do about those potential breaches, nor whether it plans to take legal action on behalf of shareholders under its so-called section 34 powers.

However, it said whatever action it does take will be guided by three regulatory objectives:

• 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, for example directors or a subset of directors;

• clarifying the law and providing important legal precedent for future actions.

It said it would not take action under section 34 solely to get compensation for shareholders but could help in that process by obtaining court declarations that could then be used by shareholders to pursue compensation.

The FMA said it would continue to liaise with the Reserve Bank and the Serious Fraud Office, CBL’s administrators and overseas regulators.

"Given the involvement of these other agencies and the complexity of the issues the investigation process is likely to take some time."

Trading in insurer CBL’s shares was halted on February 2 and suspended a week later.

On February 23 CBL’s main operating subsidiary CBL Insurance was placed in interim liquidation at the request of the Reserve Bank, which regulates insurers, prompting the appointment of administrators to the rest of the group’s New Zealand entities.

It is feared that CBL shares, valued at $747 million before the halt was imposed, are now worthless.

Three banks, ANZ, ICBC and Bank of China, are owed a collective $144m. At least two of those banks have taken impairments on their CBL loans.

Meanwhile this afternoon CBL’s chairman Sir John Wells announced his resignation, along with that of two independent directors Paul Donaldson and Ian Marsh.

In a statement to the NZX Sir John said directors had been working on raising capital in the lead-up to the intended announcement of CBL’s annual results on February 27.

“Regrettably, this was abruptly halted by events on the 23rd of February when the Reserve Bank of New Zealand applied to the Court to liquidate CBLI, and voluntary administrators of the CBL Group were appointed.”

The independent directors had been trying to preserve value in the CBL group since then but their role had been limited to helping the liquidators and administrators, he said.

“We now feel we can simply do no more for shareholders and with little power or authority, our resignation is the appropriate option in these circumstances, and provides clarity and certainty over our position.”

A fourth independent director, Tony Hannon, remains in office alongside managing director Peter Harris and deputy chairman Alistair Hutchison.

Sir John said the directors were aware Mr Harris and Mr Hutchison were trying to develop a rescue plan.

“They have consistently stated their wish is to ensure the best possible outcome for policyholders, creditors and shareholders. We support this objective and wish them well in this endeavour.”

In a statement issued through a PR firm, the remaining CBL directors said they would like to acknowledge the valuable contribution made by te departing directors.

“Details of a refreshed board will be announced when the restructure is tabled with shareholders,” it said.

No date was provided for when the plan would be made public.