The High Court has found former CBL Group Chief Financial Officer, Carden Mulholland, to have breached the continuous disclosure provisions of the Financial Markets Conduct Act 2013 (FMCA), following the public listing of CBL Corporation (CBLC) in October 2015 and its subsequent collapse in February 2018. The judgment follows a trial in the Auckland High Court before Justice Gault, which commenced in late June 2024 and concluded in early August 2024.
The Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko - proceeded to trial against Mr Mulholland, having reached in-court settlements with CBLC, its Managing Director Peter Harris, and its former independent non-executive directors in 2023 and 2024, which saw them admit multiple contraventions and the Court make pecuniary penalty orders.
This is the first time New Zealand Courts have considered the liability of a chief financial officer (CFO) acting as an accessory to a company's contravention under the FMCA.
The FMA's case against Mr Mulholland centred on his role as CFO of the CBL Group (for which CBLC was the parent company) and as a member of CBLC's Disclosure Committee. He was also a director of CBLC's European subsidiary, CBL Insurance Europe dac (CBLIE).
FMA Head of Enforcement Margot Gatland said: "The judgment represents a significant step in the case brought by the FMA against CBLC, its directors and its CFO in the wake of CBLC's collapse. It sets an important precedent for holding a CFO accountable for an entity's continuous disclosure breaches and provides judicial guidance for senior executives of listed entities in respect of the continuous disclosure requirements. The FMA considers the findings of liability against Mr Mulholland reflect serious misconduct by a senior officer of CBLC who failed to comply with fundamental obligations of the continuous disclosure regime."
The Judge found that Mr Mulholland had the required level of knowledge and participation in the conduct to make him personally liable, as an accessory, to three of CBLC's continuous disclosure contraventions. These related to:
- The existence and impact on regulatory solvency of approximately $35 million of aged receivables (insurance premiums owed to CBLI but not paid to it). This issue was known to CBLC by 24 August 2017 but not disclosed to the market until 5 February 2018.
- The need for CBLI to strengthen its reserves by approximately $100 million. This was known to CBLC by 25 January 2018 but not disclosed to the market until 5 February 2018.
- A direction issued to CBLIE by its prudential regulator, the Central Bank of Ireland, requiring CBLIE to hold additional cash reserves of €31.5 million. This was known to CBLC by 30 January 2018 at the latest but not disclosed to the market until 7 February 2018.
The decision provides guidance to listed issuers, their directors and senior officers as to the scope of their obligations under the continuous disclosure regime. In particular:
- Accessory liability for continuous disclosure obligations is not necessarily limited to board members. Where senior officers of listed companies are aware of material information, it is part of their role to ensure the board is made aware of the information and that the board has considered the issue of its disclosure.
- If an officer is aware that the board has failed to consider the disclosure of that material information, or there is a real risk the board has not considered the need for disclosure, then a failure to prompt consideration of disclosure may lead to accessory liability for the senior officer. This is particularly so where the senior officer has specific continuous disclosure responsibilities under the company's policies and procedures.
The Court concluded Mr Mulholland was not liable in respect of two further causes of action:
- A fourth continuous disclosure cause of action that related to a transaction the Judge found to be conditional and to not have a material impact on solvency.
- A cause of action brought under the fair dealing provisions of the FMCA relating to a market announcement in August 2017 detailing a "one-off" increase to CBLI's reserves. While the Court determined that CBLC contravened the FMCA in respect of this announcement, it held Mr Mulholland was not an accessory to that contravention.
The Judge also found an alternative cause of action, relating to the collective effect of the conduct, unnecessary to address given his findings in respect of the other contraventions.
The Court will now set down a hearing to determine the appropriate penalty for Mr Mulholland in the coming months.
