R v Banbrook
[2013] NZHC 462
•12 March 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CRI-2008-004-020412 [2013] NZHC 462
THE QUEEN
v
ANTHONY DAVID BANBROOK
Counsel: S P Symon for Crown
A H Waalkens QC for Prisoner
Sentence: 12 March 2013
NOTES ON SENTENCE OF COLLINS J
Introduction
[1] Mr Banbrook, you appear for sentencing on one charge of making an untrue statement in a registered prospectus.1
[2] In sentencing you, I will:
(1) describe your offending;
(2) explain the starting point for your sentence;
(3)consider what adjustments I can make to the starting point to reflect your personal circumstances;
1 Securities Act 1978, s 58(3).
R V BANBROOK HC AK CRI-2008-004-020412 [12 March 2013]
(5) explain your end sentence.
Your offending
[3] You, Mr Ludlow and Ms Braithwaite were directors of National Finance
2000 Ltd (National Finance).
[4] National Finance was primarily in the business of lending money to persons who wished to buy second-hand cars, mainly Japanese imported vehicles. National Finance’s market was mainly people with poor credit and/or low income. The majority of the loans were made to people who purchased vehicles from the Payless Cars Group, which Mr Ludlow controlled.
[5] You provided legal advice and services to National Finance, particularly in relation to proceedings to recover unpaid or overdue loans.
[6] Investors in National Finance purchased debenture stock and unsecured notes after relying on statements contained in National Finance’s registered prospectus issued on 22 September 2005.
[7] You, Mr Ludlow and Ms Braithwaite signed the prospectus in your capacity as directors.
[8] National Finance’s prospectus contained a number of untrue statements
which can be described as falling within three categories, namely: (1) Related party transactions and lending
The prospectus misstated the number, size and terms upon which National Finance issued loans to related parties, in particular, a series of interest-free and unsecured loans to Mr Ludlow and Ms Braithwaite.
The prospectus grossly understated National Finance’s bad debts. (3) The security held by the company
The prospectus contained a number of untrue statements about
National Finance’s security and assets.
[9] Mr Ludlow knew the statements in question were untrue. On the other hand, Ms Braithwaite and you have been charged on the basis that you did not know the prospectus statements were untrue. Your culpability arises because you omitted to discharge your responsibilities as a director before you signed the prospectus.
[10] Investors were misled about the risks of investing in National Finance.
[11] On 9 May 2006 National Finance was placed into receivership. At the time there were 2,026 investors whose total investments were around $24.8 million. On
1 October 2009 the receivers were able to make a distribution which resulted in secured investors receiving 49.1 per cent of their original investment.
[12] The victim impact statements record the financial and emotional struggles suffered by a number of people who have lost savings through having invested in National Finance.
Starting point
[13] There is no tariff case relating to signing a registered prospectus that contains untrue statements.
[14] There have been a number of recent cases where directors of finance companies have been sentenced for a variety of offences, including a number for breaching s 58(3) of the Securities Act 1978.
[15] I mention from the outset R v Ludlow2 because he was your fellow director. Mr Ludlow was sentenced in relation to seven counts of authorising the making of untrue statements under the Financial Reporting Act 1993 as well as one charge under s 58(3) of the Securities Act 1978. It was accepted by Toogood J that Mr Ludlow had acted dishonestly. A starting point of four years’ imprisonment was adopted in his case. In the case of Ms Braithwaite, a starting point of two years eight months was adopted. Unlike you, Ms Braithwaite had knowledge of the related
party lending.3
[16] In R v Hotchin,4 Mr Hotchin pleaded guilty to three charges under s 58 of the Securities Act 1978 relating to Nathans Finance Ltd’s documents, distributed in December 2006 and March 2007. Lang J accepted that Mr Hotchin was fully involved in board decisions, and was committed to making every effort to ensure that its parent company VTL Group and its subsidiaries succeeded. Mr Hotchin’s deep involvement with VTL compromised his ability to view the true financial position of those companies reasonably and objectively. Lang J also expressed concern at the impression the prospectus gave concerning Nathans’ liquidity. However, his Honour accepted that a very considerable sum had been invested with Nathans Finance before Mr Hotchin’s offending and therefore was not responsible for much of the total loss. It was assessed that Mr Hotchin’s offending contributed to direct losses of approximately $26 million. Lang J adopted a starting point of three years’ imprisonment.
[17] In R v Moses,5 Heath J sentenced Messrs Moses, Doolan and Young on five charges each under s 58 of the Securities Act 1978. The charges related to the same documents as those referred to in R v Hotchin, and two further documents issued in May and August 2007. Heath J accepted the directors did not act dishonestly or intentionally mislead investors, but they each simply failed to comply with their statutory function as directors and placed undue reliance on others. Heath J also found it troubling that the directors apparently believed there was nothing wrong
with diverting the public’s money invested in Nathans to the parent company to
2 R v Ludlow HC Auckland CRI-2008-004-20412, 26 January 2012.
3 R v Braithwaite [2012] NZHC 2412.
4 R v Hotchin HC Auckland CRI-2009-092-20927, 4 March 2011.
5 R v Moses HC Auckland CRI-2009-004-1388, 2 September 2011.
allow it to honour a guarantee to another VTL company. Heath J said s 58 of the
Securities Act 1978 contemplated a spectrum of offending:6
(1)Dishonesty – involving an intention to mislead investors or to obtain personal financial gain;
(2)Recklessness or gross negligence – conduct involving a major departure from the standard of care expected of a director performing a statutory duty; and
(3)Innocent misrepresentation – involving greater or lesser degrees of carelessness, or an error of judgement in respect of an issue that was material to an investment risk.
Heath J said the seriousness of the offending in that case was informed by its duration, nature and extent, as well as the opportunities that were available to correct the position. He held the directors’ conduct fell within the “gross negligence” category. He also accepted the directors’ conduct did not cause the whole $168 million loss but only monies advanced after the December 2006 documents had been issued. He estimated the direct losses amounted to about $25.2 million.
[18] For Moses, Heath J adopted a starting point of three years and three months’ imprisonment. This was higher than Mr Hotchin’s because of the greater duration of his offending, the additional losses caused, and Mr Moses’ failure as chairman. The Court of Appeal upheld this, and commented that if anything, it was on the light side.7 Mr Moses played no executive role at Nathans but did have intimate knowledge of its financial position, from both Nathans and VTL’s perspectives. He was also chairman of the board so had an obligation to lead the board in decision- making. He was also held out to members of the public as having “significant and
wide-ranging experience, especially in financial planning”.
[19] For Mr Doolan, Heath J adopted a starting point of three years and four
months’ imprisonment. This sentence was also upheld on appeal. Mr Doolan’s
6 At [15].
culpability was assessed as being marginally greater than Mr Moses’ because he oversaw the management committee and was more directly involved in the day-to- day operations. He was held out to the public as being a chartered accountant with extensive international experience in financial issues. Like Mr Moses, Mr Doolan had full access to financial information from both Nathans and VTL.
[20] For Mr Young, Heath J adopted a starting point of two years and nine months’ imprisonment. His culpability was assessed as being lower because he became a director of Nathans Finance at a later stage and had limited information about VTL and its associate companies until he was appointed to the VTL board in December
2006. Mr Young’s culpability grew after he became a VTL director. Mr Young had no financial interest in Nathans or VTL. Heath J observed that Mr Young was a chartered accountant and was held out to have extensive experience in general and financial matters. His Honour said that had Mr Young been better known in the community, he would have considered Mr Young’s failure to be more serious.
[21] In R v Davidson,8 Mr Davidson pleaded guilty to 10 charges under s 58 of the Securities Act 1978. Mr Davidson was chairman of both Bridgcorp and Bridgcorp Investments boards until the companies were placed in receivership. At the time the untrue statements were made, Mr Davidson honestly believed they were true, but accepted that his belief was not reasonable in light of what he knew or ought to have known. There was no element of dishonesty or intentional wrongdoing on his part. Mr Davidson was, however, too forgiving of deficiencies and not sufficiently alert to problems or insistent on receiving full information. Andrews J adopted a starting point of three years three months’ imprisonment.
[22] In R v Graham, four directors of Lombard Finance and Investments Ltd were sentenced together for four charges each under s 58 of the Securities Act 1978, relating to untrue statements in offer documents issued in December 2007.9 The documents expressed confidence that Lombard had sufficient liquidity to meets its obligations when in reality the board had serious and constant concerns about the
company’s liquidity and failed to mention several important factors. Around $10.45
8 R v Davidson HC Auckland CRI-2008-004-29179, 7 October 2011.
million was invested or reinvested after the documents were issued. Lombard went into receivership in April 2008, owing $111 million to about 3,600 unsecured investors.
[23] Dobson J considered that the Nathans and Bridgcorp offending involved substantially greater culpability. In relation to the non-executive directors, he was satisfied there was no intention to mislead and that each of them treated it as important to satisfy themselves that they dealt absolutely honestly with potential investors. They only fell foul of s 58 of the Securities Act 1978 because of a material and unreasonable misjudgement about the extent to which Lombard’s liquidity concerns and material factors relating to that should have been disclosed. Dobson J held that they committed personal care and attention to the offer documents, the nature of the omission was not as pervasive, the duration of the offending was shorter, and resulted in less money being subscribed. Dobson J adopted a starting point of community detention and community work.
[24] For the executive director, Mr Reeves, Dobson J noted that he was the chief executive, had day-to-day control of the management and was closer to the events. Dobson J, however, thought that Mr Reeves’ offending was distinguishable from Nathans and Bridgcorp’s directors’ offending. His Honour indicated a slightly higher starting point of a short prison sentence or home detention.
[25] I record that the Lombard case is currently before the Court of Appeal. The appeal involves amongst other issues, a cross appeal by the Crown about the adequacy of the sentences imposed by Dobson J.
[26] In assessing your starting point I have focused upon the following four factors:
(1) Amount invested after the untrue statements were published
I understand that in the case of National Finance, approximately
$2.35 million was invested after the untrue statements were published in the prospectus. That can be compared with Nathans Finance where
$25 to $26 million was invested after the untrue statements were made, Bridgcorp where $119 million was invested after the untrue statements were made, and Lombard where $10.45 million was invested after the untrue statements were made.
(2) Nature of the statements
Like Nathans and Bridgcorp the untrue statements in National Finance’s prospectus were pervasive. They were not confined to a discrete topic but concerned multiple false statements.
(3) Duration of the offending
In the case of National Finance the offending was approximately nine months. This compares with Nathans Finance and Bridgcorp where the offending was between six to eight months.
(4) Nature of your culpability
There is no suggestion that you acted dishonestly or tried to mislead investors. You had no personal knowledge of the undisclosed related party lending. Your liability exists because you omitted to turn your mind to the contents of the prospectus. You placed complete reliance on Mr Ludlow and others and in doing so you abdicated your responsibilities as a director. You could have discovered the true position had you made basic inquiries. The history of National Finance and Mr Ludlow’s previous experiences with National Finance and in its previous manifestation should have made you very alert to your responsibilities as a company director.
In my assessment, your omissions are properly categorised as omissions that amount to gross negligence.
[27] Taking into account the four factors I have focused upon, and having regard to comparable cases, I adopt a starting point of two years and six months’ imprisonment.
Adjustments to starting point to reflect personal circumstances
Reparation
[28] You have agreed to pay reparation of $75,000. I understand that sum has been saved by you and your wife for retirement. You are now 66 years old and you have now diminished prospects of continuing to earn significantly from your career as a lawyer. Accordingly, a payment of $75,000 is a meaningful payment for a person in your circumstances.
[29] I propose to discount your sentence by six months to reflect your offer of reparation and your remorse.
Previous good character
[30] I have received and considered many testimonials and letters of reference that have been prepared by those who know you.
[31] I will also give you a small, four month discount to reflect your previous good character. In doing so I note:
(1) you have no previous convictions; and
(2)the victim impact statements make no reference to victims relying on you personally when they read the prospectus. They say they relied on Mr Ludlow.
Discount for guilty plea
[32] You pleaded guilty nine days before your trial. Your guilty plea was made in circumstances where you must have always appreciated the strength of the Crown case, particularly as the Crown did not have to prove you intended to offend.
[33] I will give you a three month discount to reflect your guilty plea.
Home detention
[34] The adjustments which I have made have resulted in a 17 month prison sentence. This means home detention can be considered.
[35] I consider that a sentence of home detention adequately meets the purposes set out in the Sentencing Act 2002. It is a sentence that suitably reflects your culpability, your lack of knowledge of the true position in National Finance and your lack of actual dishonesty. I am mindful of the fact that home detention has been imposed in similar cases such as R v Davidson,10 R v Roest11and R v Moses.12
[36] Home detention is the second most restrictive sentence. The Court of Appeal in R v Iosefa13 said that home detention carries with it a considerable measure of deterrence and denunciation and provides a real alternative to imprisonment. It is not a “soft” option.
Conclusion
[37] Mr Banbrook, could you now please stand.
[38] I am sentencing you to eight and a half months’ home detention and ordering you to pay $75,000 reparation by 12 April 2013.
10 R v Davidson HC Auckland CRI-2008-004-29179, 7 October 2011.
11 R v Roest [2012] NZHC 1086.
12 R v Moses HC Auckland CRI-2009-004-1388, 2 September 2011.
13 R v Iosefa [2008] NZCA 453 at [41].
[39] In reaching this sentence I have reflected on the overall appropriateness of that sentence. In my judgement the sentence that I have settled upon is an appropriate response to your offending. It is a sentence that:
(1) holds you accountable for your offending;14
(2) denounces your conduct;15
(3) should deter others from offending in a similar way;16
(4) is comparable to sentences imposed for similar offending;17 and
(5)is the least restrictive sentence that can be imposed in the circumstances.18
[40] Once you are released from this Court you are to travel directly to 15A Waitemata Road, Hauraki, Auckland and await the arrival of the monitoring company representative and probation officer.
[41] You are to reside at that address for the duration of your sentence.
[42] You are to comply with the requirements of the electronic monitor and your probation officer.
[43] You are to abstain from possessing and/or consuming alcohol and illicit drugs throughout the sentence of home detention.
[44] I will order that the statement of your financial position is suppressed.
[45] You may stand down.
14 Sentencing Act 2002, s 7(1)(a).
15 Section 7(1)(e).
16 Section 7(1)(f).
17 Section 8(e).
18 Section 8(g).
D B Collins J
Solicitors:
Crown Solicitor, Auckland
Fisher Lamberg, Auckland for Prisoner
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