The High Court has ordered Peter Harris, the former CBL Corporation Limited (In Liquidation) (CBLC) managing director, to pay a penalty of $1.4 million for continuous disclosure and misleading conduct breaches following proceedings brought by the Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - under the Financial Markets Conduct Act 2013 (FMCA) (the Continuous Disclosure Proceeding).
The Continuous Disclosure Proceeding relates to CBLC, a listed entity, failing to disclose material information to the market during 2017 and 2018. The FMA alleged that:
- CBLC failed to comply with its continuous disclosure obligations in relation to:
- the need for its primary operating subsidiary, CBL Insurance Limited (In Liquidation), to strengthen its reserves;
- the existence and impact of a large amount of aged receivables (insurance premiums owed but not paid) in respect of business originated by Securities and Financial Solutions Europe SA, a French insurance business; and
- directions issued to and conditions imposed on CBLC's subsidiary in Ireland, CBL Insurance Europe dac, by the Central Bank of Ireland; and
- CBLC engaged in misleading and deceptive conduct in respect of its market announcement on 24 August 2017.
In March 2024, the FMA and Mr Harris entered into an in-court settlement to resolve the Continuous Disclosure Proceeding on terms acceptable to both parties. That included Mr Harris making admissions to seven contraventions of the FMCA, and jointly agreeing to support the penalty that the Court has now approved. A penalty hearing for Mr Harris was held on 10 June 2024.
In his decision, released this week, Justice Gault declared Mr Harris breached the fair dealing and continuous disclosure provisions under sections 22 and 270 of the FMCA and imposed the pecuniary penalty.
In doing so, Justice Gault said: "[t]he present case is the epitome of what the fair dealing provisions and continuous disclosure regime are designed to prevent. Such breaches undermine market integrity and transparency. They are unfair to investors, and jeopardise confidence in the integrity and transparency of New Zealand's financial markets. Any penalty must bear in mind such harmful effects. The contraventions denied investors access to accurate and timely information, and are inconsistent with the promotion of transparent financial markets. Investors were provided with misleading information in August 2017 and no further information was made available to them about the multiple material issues impacting CBLC's business until 5 February 2018, after the trading halt. The conduct was completely inconsistent with promoting the confident and informed participation of business, investors and consumers in New Zealand's financial markets."
Justice Gault added: "More generally, as Managing Director, Mr Harris was integral to the overall direction and management of the CBL Group, and had a detailed knowledge and understanding of the matters that are the subject of the contraventions," and that he "was not only Managing Director but also a member of the Disclosure Committee tasked with determining information required to be disclosed to the market."
FMA Head of Enforcement, Margot Gatland, said: "The level of penalty reflects the seriousness of the breaches that occurred in this case and Mr Harris's roles and responsibilities as CEO and Managing Director entrusted with the governance of a listed company. As the Court states, disclosure is a fundamental obligation which ensures New Zealand's listed capital markets are efficient, transparent and fair, and that there is equality of information in the market. Mr Harris's actions fell well below the requirements of the FMCA."
As part of his settlement with FMA in March 2024, Mr Harris also offered, and the FMA agreed, to an Enforceable Undertaking that he will not hold any management or directorship positions with any listed issuer or licenced insurer in New Zealand and will not participate in any regulated offer in New Zealand. The duration of this undertaking is until the final determination by the courts of the relief sought by the FMA in its separate proceeding alleging failures in disclosure during CBLC's initial public offering in 2015 (the IPO Proceeding) (including any appeals).
Background
The FMA filed two proceedings in 2019 alleging breaches of the FMCA, namely the Continuous Disclosure Proceeding and the IPO Proceeding.
In December 2023, the Court made pecuniary penalty orders against CBLC and its four former independent directors in the Continuous Disclosure Proceeding after they admitted continuous disclosure and misleading conduct breaches. The hearing of the Continuous Disclosure Proceeding against former CBLC chief financial officer Carden Mulholland, commenced in late June 2024 and concluded at the beginning of this month. The parties await the decision of the Court.
The IPO Proceeding was brought against CBLC, Mr Harris, Mr Mulholland and the estate of former non-executive director Alistair Hutchison*. The hearing of the IPO Proceeding is set down for April 2026.
The defendants have settled separate civil proceedings brought by shareholders and liquidators for a sum of $72.5 million, which includes a personal contribution by Mr Harris. Approximately 53% of that settlement sum has been or will be paid to CBLC shareholders who participated in those proceedings. The settlement was entered into without any admission of liability by the defendants and the sum is payable on behalf of CBLC and all of CBLC's directors.
CBLC was listed on the NZX Main Board in 2015. It had a market capitalisation of $747 million, and a share price of $3.17, when trading of its shares was halted and then suspended in February 2018. The company was put into voluntary administration in February 2018, and then placed in liquidation in May 2019.
Notes
*Mr Hutchison died in December 2021, but the claims in the IPO Proceeding continue against his estate. The FMA discontinued the claims against Mr Hutchison in the CD Proceeding.
