Registrar of Companies v Bublitz - [2022] NZHC 2177

No judgment structure available for this case.

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-1397

[2022] NZHC 2177

UNDER the Companies Act 1993, s 383(3)

BETWEEN

REGISTRAR OF COMPANIES

Applicant

AND

PAUL NEVILLE BUBLITZ

First Respondent

AND

BRUCE ALEXANDER MCKAY

Second Respondent

Hearing:
29 November 2021; further submissions 8, 17 and 22 December

2021, 2 and 19 May 2022

Appearances:

SS McMullan for the Applicant DJ Dufty for the First Respondent

B McKay, Second Respondent in person

Judgment:

30 August 2022

JUDGMENT OF FITZGERALD J

This judgment was delivered by me on 30 August 2022 at 3.00pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors: Meredith Connell, Auckland To: D Dufty, Auckland
And to: B McKay, Auckland

REGISTRAR OF COMPANIES v BUBLITZ [2022] NZHC 2177 [30 August 2022]

Introduction [1]

Factual background [6]

Overview  [6]
The “plan” to acquire a finance company or companies  [21]
The acquisition (and fall) of Viaduct  [26]
The acquisition of Mutual  [30]
The charges and key findings in relation to them  [34]
The duration of the offending  [41]
The motivation for the offending  [46]

The scale of the offending/losses caused [49] Mr Bublitz’s and Mr McKay’s culpability/personal circumstances [51] Further evidence on the Registrar’s application [56]

Legal principles [68]

The statutory provisions [68]
Approach to prohibition orders [72]

Evidence on a prohibition order application  [82] “The most serious of cases”: is s 8(c) of the Sentencing Act 2002 relevant? [85] Is a prohibition order a penalty?  [90]
Introduction  [90]
The Registrar's submissions on penalty  [92]
The respondents' submissions on penalty  [95]
Key authorities on penalty  [96]
Discussion on penalty  [120]
Retrospectivity - introduction  [135]
The Registrar's submissions on retrospectivity  [138]
Respondents' submissions on retrospectivity  [144]

Discussion on retrospectivity [146]

The parties’ submissions [155]

The Registrar’s submissions [155]

Mr Bublitz’s submissions [165]

Mr McKay’s submissions [172]

Analysis – should prohibition orders be made and if so, for how long? [177]

Result [194]

Introduction

[1] In 2019, following a Judge-alone trial before Toogood J, Mr Bublitz and Mr McKay were convicted on charges of theft by a person in a special relationship arising out of the management of Mutual Finance Ltd (Mutual).

[2] As a result of those convictions, each of Mr Bublitz and Mr McKay are prohibited from taking part in the management of a company for a period of five years. This five-year prohibition is an automatic consequence for a person convicted of a dishonesty offence.1 The five-year period will expire in February 2024.

[3] The Registrar of Companies (the Registrar) now applies pursuant to s 383 of the Companies Act 1993 (the Act) for an order prohibiting Mr Bublitz and Mr McKay from taking part in the management of a company beyond the automatic five-year prohibition period. The Registrar seeks a prohibition order of approximately 12 years from the date of this Court’s judgment.2 When combined with that portion of the automatic five-year period already served by Mr Bublitz and Mr McKay, this would lead to a total effective prohibition of around 14 and a half years from the date of their convictions.

[4] Mr Bublitz and Mr McKay oppose the Registrar’s application. They say that the automatic five-year prohibition period is appropriate in all of the circumstances, such that no additional period of prohibition is required.

[5]The balance of this judgment is structured as follows:

(a)First, I set out the factual background to Mr Bublitz’s and Mr McKay’s offending, primarily by reference to Toogood J’s reasons for verdicts,3 the Judge’s sentencing notes,4 and the Court of Appeal’s judgment determining Mr Bublitz’s and Mr McKay’s appeals against conviction and sentence.5

1      Companies Act 1993, s 382.
2      Thus expiring on or around 30 August 2034.
3      R v Bublitz [2019] NZHC 222 [Reasons for verdicts].
4      R v Bublitz [2019] NZHC 592 [Sentencing notes].
5      Bublitz v R [2019] NZCA 364 [Appeal judgment].

(b)I then summarise the statutory scheme and the approach to prohibition orders.

(c)I then address some specific issues arising in this case and in particular, whether a prohibition order is a penalty for the purposes of s 6 of the Sentencing Act 2002 and s 25(g) of the New Zealand Bill of Rights Act 1990 (Bill of Rights Act). This issue arises because the amendment to s 383 of the Act which permits the Court to impose a prohibition order of more than 10 years (subs (1A)) came into force on 1 April 2014, yet the conduct for which Mr Bublitz and Mr McKay were convicted occurred prior to that date (in 2010). The gist of each of s 6 of the Sentencing Act and s 25(g) of the Bill of Rights Act is that if the penalty for an offence is amended after the conduct giving rise to the offence occurred but prior to sentencing, the offender is entitled to the lesser penalty. Even if prohibition orders are not penalties for these purposes, however, I must still determine whether s 383(1A) has retrospective effect.

(d)I then summarise each party’s submissions on whether the prohibition order sought by the Registrar should be made.

(e)I then set out my discussion of the Registrar’s application and provide my reasons for reaching my decision.

Factual background

Overview

[6] The charges against Mr Bublitz and Mr McKay were heard before Toogood J in a Judge-alone trial over a three-week period in August/September 2018. Toogood J delivered verdicts on 5 February 2019 and then delivered (lengthy) reasons for verdicts on 21 February 2019.

[7] Mr Bublitz was convicted of four charges of theft by a person in a special relationship, an offence pursuant to s 220 of the Crimes Act 1961 (charges 10 to 13). Those charges alleged that Mr Bublitz knowingly misapplied funds raised from the public by Mutual, a company controlled by him, in breach of the restrictions on related party transactions contained in a deed of guarantee between Mutual and the Crown (the Mutual Crown guarantee). I explain further below (at [21]) the background to guarantees between the Crown and finance companies such as Mutual.

[8] Charges 10 to 12 concerned Mutual’s purchase from Viaduct Capital Ltd (Viaduct), another finance company associated with Mr Bublitz, of loans Viaduct had made to companies in Hunter Capital Group (the Hunter Group), a group of companies controlled by Mr Bublitz and through which he undertook property development projects. Toogood J held that those loan purchases were related party transactions because Mr Bublitz controlled both Mutual and Viaduct for the purposes of the Mutual Crown guarantee. Toogood J held that Mr Bublitz knew of the restrictions on related party transactions in the Mutual Crown guarantee and knew that loan transactions were in breach of those restrictions.

[9] Charge 13 arose out of advances made by Mutual to Hilltop Ridge Farms Ltd (Hilltop), one of the Hunter Group companies. Toogood J held that Mr Bublitz also controlled both those companies, and that he also knew that the transaction was in breach of the Mutual Crown guarantee.

[10] Mr McKay was convicted as a party to Mr Bublitz’s offences, though he did not face charge 13.

[11] Mr Bublitz was also convicted of two charges of making a false statement as a promotor in a prospectus, an offence under s 242 of the Crimes Act (charges 14 and 15).

[12] Mr Bublitz was acquitted of six other charges relating to alleged related party transactions between Viaduct and other companies controlled by him, which were said to have been in breach of Viaduct’s Debt Security Trust Deed (Viaduct Trust Deed) (charges 1 to 3 and 5 to 7). Toogood J was not persuaded that these transactions were

related party transactions for the purposes of the Viaduct Trust Deed, because the Crown had not proved that Mr Bublitz “controlled” Viaduct in the manner that term was defined in the deed. As a result of that finding, Mr McKay was also acquitted of other charges he faced, which were dependant on the transactions in question being related party transactions under the Viaduct Trust Deed (charges 4, 8 and 9).

[13] Mr Bublitz and Mr McKay were sentenced by Toogood J on 27 March 2019.6 Toogood J arrived at an end sentence in relation to Mr Bublitz of three years and two months’ imprisonment, and an end sentence for Mr McKay of 23 months’ imprisonment. Toogood J converted Mr McKay’s sentence to one of 12 months’ home detention.

[14] Mr Bublitz and Mr McKay then appealed against their convictions. Mr Bublitz also appealed against his sentence.

[15] As the Court of Appeal observed at the outset of its judgment, neither Mr Bublitz nor Mr McKay were charged with breaching the Viaduct Crown guarantee.7 They were acquitted on the charges relating to the Viaduct Trust Deed (as explained at [12] above). Toogood J had also dismissed charges relating to alleged breaches of the Mutual Trust Deed. Mr Bublitz and Mr McKay were, however, convicted on the charges arising out of the same transactions but alleging breach of the Mutual Crown guarantee. The Court of Appeal accordingly observed that:

[10] These outcomes are explicable only on the basis that the definition of “control” in the Mutual Crown guarantee was wider than the comparable provisions in the Viaduct Trust Deed and the Mutual Trust Deed. Whether the appellants understood the breadth of the restrictions on related party lending in the Mutual Crown guarantee arising out of the extended definition of “control”, and whether they participated in the transactions knowing they breached those restrictions, are issues lying at the heart of these appeals against conviction. …

6 Sentencing notes, above n 4.
7 Appeal judgment, above n 5, at [8].

[16] Mr Bublitz’s appeal against conviction was allowed in part, his convictions on charges 14 and 15 (discussed at [11] above) being set aside.8 The Court then turned to charges 10 to 13 and what it described as the “real issue” of whether Toogood J had been right to conclude that the Crown had proved Mr Bublitz knew Viaduct and Hilltop were related parties of Mutual, and knew they were therefore subject to the related party restrictions in the Mutual Crown guarantee.9 Despite being critical of the adequacy of Toogood J’s reasoning on this issue, the Court was not persuaded that he had been wrong to conclude that Mr Bublitz had the requisite knowledge.10

[17] The Court of Appeal was also unpersuaded that Toogood J was wrong to conclude that Mr McKay was aware of the restrictions on related party lending in the Mutual Crown guarantee, and that he must have known the relevant transactions breached those restrictions.11 Indeed, the Court observed that “Mr McKay, more than anyone, had a clear understanding of the exact financial position of the relevant entities, Hunter, Viaduct and Mutual, throughout this period.”12 Mr McKay’s appeal against conviction was accordingly dismissed.

[18] Mr Bublitz’s appeal against sentence was allowed, and his sentence of three years and two months’ imprisonment was set aside and a sentence of 11 months’ home detention substituted. The Court of Appeal concluded that Toogood J had adopted too high a starting point on charges 10 to 13 as a result of taking into account transactions that were not the subject of charges and overstating the period of the offending.13 A lower starting point was also considered more consistent with the starting point adopted for Mr McKay.

[19] Finally by way of overview, and partly explaining the lengthy delay between the conduct giving rise to Mr Bublitz’s and Mr McKay’s offending (2010) and entry of their convictions (2019), the trial before Toogood J was in fact the second trial on

8 The Crown all but conceding that those convictions could not stand: Appeal judgment, above n 5, at [129].
9 At [102].
10 At [103].
11 At [117].
12 At [121].
13 By taking into account conduct pre-dating the offending described by Toogood J as “at the margins of legality”: Appeal judgment, above n 5, at [150].

the charges. The first trial commenced before Woolford J in August 2016, but was aborted in May 2017 after nine months of hearing. This was partly due to significant failures on the part of the Crown in terms of disclosure. I return to the significance of this delay later in this judgment.14

[20] In the next section of this judgment, I summarise the factual background to Mr Bublitz’s and Mr McKay’s offending in a little more detail. Given the charges against Mr Bublitz and Mr McKay were heard Judge-alone (with detailed reasons for verdicts being given), and then subject to detailed sentencing notes and judgment of the Court of Appeal, the factual basis for their offending has been traversed in some detail in those contexts. The following summary accordingly draws heavily on Toogood J’s reasons for verdicts, his sentencing notes and the Court of Appeal’s judgment.15

The “plan” to acquire a finance company or companies

[21] The 2008 global financial crisis had a profound effect on commercial property developments in New Zealand (and elsewhere), leading to illiquidity, distressed loans and depressed asset values. In that context, the Government had established the Crown retail deposit guarantee scheme (the Crown Scheme), which was designed to support the New Zealand banking system and give some degree of assurance to New Zealand depositors at a time of financial market uncertainty. The Crown Scheme guaranteed the New Zealand Government would repay depositors affected by the failure of New Zealand financial institutions who participated in the Scheme. That participation was by way of entry by the Crown and the relevant financial institution into a legally binding guarantee agreement.

[22] Like most debenture trust deeds relating to finance companies, the Crown Scheme guarantees contained limitations on related party transactions and associated disclosure requirements. Toogood J accepted that related party transactions are neither uncommon nor inherently improper, but because such a transaction could have an

14 See [189] below.
15 There was no objection to the admissibility of Toogood J’s factual findings (in either his reasons for verdicts or his sentencing decision) on the Registrar’s application. See also Wellington Tenths Trust v Skiffington [2018] NZHC 1261; and Commissioner of Police v Filer [2013] NZHC 3111. Neither Mr Bublitz nor Mr McKay sought to challenge any of Toogood J’s findings.

effect on the profit or loss and financial position of an entity, knowledge that such transactions have occurred or are contemplated can affect the assessment of risk by a potential investor.16

[23] In or around late 2008, Mr Nicholas Wevers, an associate of Mr Bublitz, identified an opportunity to take advantage of the then market conditions by establishing a finance company to acquire distressed property loans at discounted prices, funding the completion of the underlying developments and making significant profits as a result.

[24] Mr Bublitz was at the time the ultimate owner of the Hunter Group. The Hunter Group had significant assets but, in the wake of the global financial crisis, also had significant cash flow issues. Mr Wevers invited Mr Bublitz to join him in his proposed venture and to help fund it. Mr Bublitz was attracted to the possibility of acquiring a finance company (that had the benefit of a Crown guarantee under the Crown Scheme) as a source of funding for the Hunter Group, and to benefit from the other opportunities Mr Wevers identified.

[25] Both Mr Bublitz and Mr Wevers recognised that any finance company acquired would be subject to restrictions on related party lending, both under its debt security trust deed and the Crown Scheme. They therefore asked Mr McKay, who had been contracted to the Hunter Group in a senior finance role since 2005, to consider and report on the various tests for determining if parties were “related” for these purposes. They also sought accounting and legal advice on the issue.17

The acquisition (and fall) of Viaduct

[26] The proposal was put into action when in February 2009 a finance company called Priority Finance Ltd (Priority) was acquired by a company formed specifically

16 Sentencing notes, above n 4, at [9].
17 The Registrar produced in evidence on the current application a memorandum from Mr McKay to Mr Bublitz and Mr Wevers dated 12 December 2008 advising on the tests for related party transactions. The memorandum stated: “One of the issues surrounding the set up of the Distressed Loan Finance Company (the Fund) is related party transactions. … Clearly there is a preference for transactions not to be treated as related party transactions and thus to be able to present a structure to investors that does not include related party transactions. Even though the transactions proposed may be commercially sound the mere fact of them being ‘related party’ may be considered in the eyes of some potential investors to be a negative.”

for that purpose, Phoenix Finance Holdings Ltd (Phoenix). It had been intended that Mr Bublitz would own the majority of the shares in Phoenix, but advice received shortly before the settlement of the purchase was that this would create related party problems. As a result, Mr Wevers instead acquired all of the shares. The Hunter Group funded Phoenix’s purchase of Priority, by way of a loan secured by a general security agreement over Phoenix’s assets (being its shares in Priority).

[27] Following settlement of the purchase, Priority changed its name to Viaduct and Mr Wevers and Mr McKay were appointed its directors. Mr McKay was also appointed its chief financial officer. Toogood J described the operations of Viaduct and the Hunter Group in the period following Viaduct’s acquisition in the following terms:

[232] Immediately after the Viaduct acquisition, the administrative arrangements for Hunter and Viaduct were closely integrated, including accommodation and staffing, with Viaduct relieving Hunter of significant administrative cost. There is no evidence that Mr Wevers, Mr McKay or (later) Mr Blackwood, as Viaduct’s directors, ever questioned whether the assumption of such costs by Viaduct was equitable. Moreover, the senior executives, including Mr Bublitz, worked interchangeably and, sometimes, contemporaneously on matters between or affecting Viaduct and the Hunter entities.

[28] Cash available to Viaduct was used to purchase assets from the Hunter Group and also to make cash advances, thereby alleviating the Hunter Group’s cash flow problems. In April 2009, however, the Crown withdrew the Viaduct Crown guarantee on the basis that it was being used to provide benefits to persons outside the intended scope of the Crown Scheme. There was no suggestion at that time that any of Viaduct’s transactions infringed the related party transaction restrictions in the Viaduct Crown guarantee or the Viaduct Trust Deed.

[29] Without the Viaduct Crown guarantee, Viaduct’s financial position deteriorated sharply to the point that in September 2009, Mr Wevers (who it will be recalled owned all of the shares in Phoenix, which in turn owned Viaduct, and who was one of Viaduct’s directors) advised Mr Bublitz to take “drastic actions” to deal with Viaduct’s financial position. Mr Wevers’ concerns were not resolved to his satisfaction and he resigned as a director of Viaduct in late September 2009. He transferred 51 per cent of his shareholding in Phoenix to Mr McKay, retaining the balance. A Mr Blackwood

(who was charged and convicted together with Mr Bublitz and Mr McKay, but whose convictions were later set aside on appeal) replaced Mr Wevers as a director of Viaduct.

The acquisition of Mutual

[30] In December 2009, and in an effort to stem the liquidity issues in the Hunter Group, a company within that group bought another finance company, Mutual. It was not disputed at trial that Mr Bublitz controlled Mutual. He was its managing director and ultimately owned all its shares.

[31] With an eye to the limitations on related party transactions in the Mutual Crown guarantee, shortly prior to Mutual’s acquisition, Mr Bublitz gave assurances to the Treasury that Mutual did not intend to purchase any Viaduct assets. This was recorded in a letter (prepared by Mr McKay) to the Treasury from Mr Bublitz (and one of Mutual’s vendors) dated 9 November 2009. Toogood J said the following about that letter:18
… it assured the Treasury that Hunter did not intend or propose to sell any assets to Mutual or undertake any other form of capital restructuring. The letter also assured the Treasury that Hunter would not seek to significantly change the business operations of Mutual and, notably, stated that:

(a) lthough Viaduct Capital is not a related party of MFL, any transactions contemplated between MFL and Viaduct Capital will be treated as if they are related party transactions for the purposes of the Crown guarantee.

[285] The assurances that were reiterated in the letter included the statements that:

(a)Hunter did not intend to sell any assets to Mutual;

(b)the operations of Mutual would remain largely intact and that Mr Lindsay Kincaid would remain a director;

(c)Hunter did not intend to take full control of Mutual until 31 October 2010.

[286] The letter also assured the Treasury that there was no intention by either Hunter or Mutual that Viaduct Capital would have any ownership of Mutual or that there would be directors in common between the two entities. It was said that both “MFL and Viaduct Capital will remain entirely separate

18 Reasons for verdicts, above n 3, at [284]. The content of the letter was relied on by the Judge later in his reasons for verdicts for his finding that Mr Bublitz knew of the related party restrictions in the Mutual Crown guarantee: see n [24] below.

entities”. Furthermore, it was asserted that Viaduct’s activities in respect of MFL would be limited to sourcing and managing lending transactions.

[287] Given the way in which Viaduct had been operated up to that point and bearing in mind the motivation for the acquisition of Mutual, Mr Bublitz’s statements in the letter to the Treasury, which I find were known and acquiesced to by Mr McKay and Mr Blackwood, were untrue and deliberately misleading. That the expression of present intention was not truthful is demonstrated by how quickly Mr Bublitz, Mr McKay and Mr Blackwood assumed control of Mutual and ran it in conjunction with Viaduct. That proposition is proved by, among other things, the means by which Mutual was acquired and by the marginalisation of Mr Kincaid as a director. That was achieved by dividing transactions up into “chunks” which meant that approvals could be given by Mr Bublitz alone operating under a $250,000 threshold which would have required approval by the board, including Mr Kincaid.

(Emphasis added.)

[32] Over the ensuing months, Mutual purchased nearly $4 million worth of Viaduct loans and advanced over $470,000 to Hunter Group entities.19

[33] On 13 May 2010, Viaduct was placed into receivership by the trustee for the company’s debenture holders. On 14 July 2010, receivers were appointed to Mutual. Investigations by the Treasury, the Serious Fraud Office and the Financial Markets Authority (FMA) into the affairs of the two companies and the actions of their shareholders, directors and managers then followed. Those investigations ultimately led to charges being laid against Mr Bublitz and Mr McKay (and others).

The charges and key findings in relation to them

[34] For charges 1 to 9, the Crown relied on alleged breaches of the Viaduct Trust Deed’s restrictions on related party transactions. A “related party” for the purposes of the deed was defined by reference to New Zealand accounting standard NZ IAS 24, which in turn relied on the concept of the “control” of the relevant entities in issue. Toogood J accepted expert evidence to the effect that “control” required the power to govern the entities concerned, with that power having some contractual or legal basis.20 The Crown’s case was advanced, inter alia, on the basis of a secret, binding arrangement between Mr Wevers and Mr Bublitz which gave Mr Bublitz control of

19 Not all of these transactions were subject to charges.
20 Reasons for verdicts, above n 3, at [164].

Viaduct. Toogood J was not sure, however, that Mr Bublitz controlled Viaduct in this sense.21 The Judge stated:

[210] I return to the onus and standard of proof on what is a core issue. I accept that there is force in the several bases upon which Mr Johnstone advances the Crown’s proposition about an arrangement, and acknowledge that suspicion must attach to the way in which Mr Wevers, Mr McKay and, particularly, Mr Bublitz conducted themselves up to and immediately after the acquisition of [Viaduct]. But the Crown’s case does not take me across the threshold into being sure that Mr McKay, Mr Wevers and Mr Bublitz knew that the steps they had taken and were taking amounted to wilful breaches of the related party restrictions in the Priority/Viaduct trust deed because [of what] was a secret, binding arrangement that Mr Bublitz had the power to control Viaduct.

[35] Toogood J was, however, sure that Mr Bublitz controlled Viaduct (in a “real or effective” way) for the purposes of the Mutual Crown guarantee, on which charges 10 to 13 were based.22 This conclusion was based on the Judge’s detailed consideration of Mr Bublitz’s involvement in Viaduct, both before and after Mr Wevers’ departure in September 2009.23 For example, Toogood J stated:
[260] I have no doubt that, although the other executives were influential in the planning and decision-making before and after the acquisition of Priority, Mr Bublitz had the ability to exercise real and effective control of Viaduct whenever he considered it necessary to do so to protect or advance his overall interests. There is no evidence that any significant decision affecting Viaduct on a matter going to the governance of the company was made by Mr McKay or Mr Wevers contrary to Mr Bublitz’s wishes or without his involvement. The major disagreement between Mr Bublitz and Mr Wevers in September 2009 about the direction in which Viaduct should be taken simply resulted in Mr Wevers’ departure.

[36] In the context of his findings on Mr Bublitz’s control of Viaduct, Toogood J referred to a letter Mr Bublitz sent to the Treasury at the time of its investigation of Viaduct and which led to the withdrawal of the Viaduct Crown guarantee. Toogood J referred to that correspondence in the following terms:

[239] The Treasury’s notice of the withdrawal of the Crown guarantee gave rise to further obfuscation by Mr Bublitz and Mr McKay, particularly, with Mr Bublitz telling Treasury officials, much less than frankly, that he never intended to become heavily involved in the affairs of Viaduct beyond managing a lending position and assisting with the sourcing of loan

21 At [207] and [209]–[217].
22 Sentencing notes, above n 4, at [21].
23 Reasons for verdicts, above n 3, at [229]–[265].

transactions. There is no doubt that Mr Bublitz did not want Viaduct to do anything which put his investments at risk.

(Emphasis added.)

[37] As to Mr Bublitz’s and Mr McKay’s knowledge of the related party restrictions in the Mutual Crown guarantee, Toogood J was sure that both men had such knowledge.24 The Judge was also sure that both men knew that the transactions were in breach of the Mutual Crown guarantee related party transaction restrictions:25

… each of them was fully aware that what was done was done contrary to the obligations imposed by the Crown guarantee in the interests of Mutual’s investors.

[38] I interpolate to note that in its judgment on Mr Bublitz’s and Mr McKay’s conviction appeals, the Court of Appeal was satisfied that there was “ample evidence” that Mr Bublitz knew of the related party restrictions in the Mutual Crown guarantee and that the transactions underpinning charges 10 to 13 did not comply with those restrictions.26 As mentioned earlier, the Court considered the “real issue” was whether the Crown had proved that Mr Bublitz knew Viaduct (charges 10 to 12) and Hilltop (charge 13) were related parties of Mutual, and therefore subject to those restrictions because of the extended definition of “control” in the Mutual Crown guarantee.27

[39]The Court was not persuaded the Judge’s findings on this issue were wrong.

The Court reached this conclusion on the basis that:28

(a)Mr Bublitz was at the time an experienced and successful businessman, very experienced in the property and finance sectors;

(b)there was no doubt he was keenly attuned to related party issues throughout the relevant period of time;

24 Reasons for verdicts, above n 3, at [288] and [291]. The evidence relied on by the Judge to infer Mr Bublitz’s knowledge was his assurances in the November 2009 letter to the Treasury, referred to at [31] above, about the future conduct of Mutual vis-à-vis Viaduct.
25 At [298]. See also Appeal judgment, above n 5, at [60]–[64].
26 Appeal judgment, above n 5, at [102].
27 At [102].
28 At [104]–[116].

(c)the Mutual Crown guarantee was Mutual’s key attraction and Mr Bublitz would not have acquired Mutual without it;

(d)Mr Bublitz’s letter to the Treasury dated 9 November 2009 supported an inference that he was fully aware of the related party restrictions in the guarantee;

(e)Mr Bublitz “must have” appreciated that Viaduct and Mutual were related parties for the purposes of the guarantee given the extent of his control over Viaduct’s affairs;29 and

(f)there was no challenge to Toogood J’s finding that Mr Bublitz controlled Hilltop, and the Court was satisfied the evidence demonstrated that Mr Bublitz knew that he did so in terms of the extended definition of control in the Mutual Crown guarantee.

[40] The Court of Appeal was similarly unpersuaded that Toogood J had been wrong to conclude that Mr McKay had the requisite knowledge for the purposes of charges 10 to 12.30 The Court referred in this regard to:

(a)Mr McKay’s significant business experience and expertise;

(b)that he carried out his work in a careful and competent manner;

(c)Mr McKay’s important role in the acquisition of both Viaduct and Mutual and the subsequent administration of their operations, and that a “central focus” for Mr McKay was considering related party issues under the Trust Deeds and Crown guarantees for both finance companies;31

(d)that in the context of advice received at the time of Mutual’s acquisition, Mr McKay must have appreciated the breadth of the

29 Appeal judgment, above n 5, at [110].
30 At [117].
31 At [120].

concept of “control” in the Mutual Crown guarantee and its significance in the context of the proposed transactions between Viaduct and Mutual; and

(e)that given his close working relationship with Mr Bublitz and his involvement in the day-to-day operation of all of the relevant entities, Mr McKay “must have known … that Mr Bublitz was exercising effective overall control by the time of the transactions giving rise to charges 10–12” and thereby breached the related party restrictions in the Mutual Crown guarantee.32

The duration of the offending

[41] The specific transactions that were the subject of charges 10 to 13 occurred over the relatively short period of 25 January 2010 to 4 June 2010. However, Toogood J found that Mr Bublitz’s and Mr McKay’s offending “was the almost inevitable consequence” of a pre-determined and sophisticated plan “devised” at a meeting in Pauanui in January 2009 between Mr Bublitz, Mr McKay and another associate of Mr Bublitz, involving elaborate steps to circumvent the restrictions on related party lending in the Viaduct Trust Deed.33 An early example of this was Mr Wevers being the sole shareholder in the holding company Phoenix, despite having put no money into the company. In relation to other steps to “distance” Mr Bublitz from the various entities, Toogood J observed:

[233] There can be no doubt that Mr Bublitz was keen to avoid full transparency in the revised arrangements for the shareholdings and directorships in the Hunter Group assets. The language he adopted – referring to associates acting as “fronts”, “warehousing” shares, and transferring assets “off balance sheet” – lends a devious air to the activities. While those arrangements were intended to distance Mr Bublitz from control of the Hunter entities rather than Viaduct, they demonstrate Mr Bublitz’s awareness of the implications of the related party provisions for Viaduct’s dealings with them.

[42] I note, however, that Toogood J did not find that any of this early conduct was unlawful. For example, in relation to the various communications in which the terms “front”, “warehousing” and the like were used, Toogood J stated:

32 Appeal judgment, above n 5, at [121].
33 Sentencing notes, above n 4, at [45] and [79].

[194] I accept that after the mid-January meeting at Pauanui, Mr Bublitz set out to obtain assistance in creating a separation between him in his capacity as intended director and shareholder in the new finance company and as the owner in control of the various Hunter Group entities. For example, he corresponded with Mr Morrison on 20 January 2009 to say that, in order to raise funds from the public, he was working out the opportunity to buy a finance company with the government guarantee in place. He said:

In order to do this I need to create a separation between you/me for the purposes of “related party issues” under the Securities Act, Reserve Bank Act & AFRS so that your trustee company can hold assets effectively off balance sheet and then FinCo can either lend or require these assets without causing issues or concerns. Accordingly can we please arrange for the following:

Lance to resign from Hunter entities, Nicholson Trust and Kawakawa

HCG wishes to sell its shares in Dockland Holdings Limited to a Morrison Creed Trustee Co (maybe set up a separate vehicle called Morrison Creed (DHL) Trustee Limited for this purpose) & the trustee co hold these on trust for HCG or a back to back loan is left owing between HCG & the trustee co, whichever is more appropriate.

What we are wanting to do is use our shares in Docklands to help capitalize FinCo & John Harkness is preparing a Sale Agreement at present for this purpose.

[195] On the face of it, it is reasonably open to conclude that that request amounted to no more than Mr Bublitz reorganising the affairs of the Hunter Capital Group to recognise that, if he took “control” of the new finance company in terms of the definition in the Priority trust deed, he could not be in control of the various Hunter entities whom he wished to deal with the finance company so as to provide much needed cash for the Hunter Group projects. I regard it as significant that Mr Bublitz had explained his intentions to Mr John Harkness, a solicitor whom he asked to implement the steps Mr Bublitz considered necessary. If Mr Bublitz was acting fraudulently at that point, he could have been much more discreet. On the face of the documents, including the email to Mr Harkness, Mr Macmillan, Mr McKay and Mr Wevers on 14 January 2009 setting out what he intended should happen, an analogy can be drawn (as Mr Lance suggested in closing) to a tax payer legitimately reordering his affairs to minimise the incidence of tax. It is an analogy which had occurred to me as I listened to the evidence and the argument, and I agree it is apt.

[196] I place into the same category the approaches Mr Bublitz made on 25 January 2009 to Mr Franklin asking him to “front” NKE Trust Limited; the request to Mr Bruce to acquire shares in the Silverdale project on the basis of an advance of $600,000 to do so; and his request to Mr Lovegrove asking him to be a trustee/director of a company to hold some assets of his from time to time. ….

[197] Whether or not such arrangements would be effective to avoid the proper application of the related party restrictions, those steps are open to the inference that Mr Bublitz was adopting measures that he considered to be purposeful but lawful in terms of the applicable definition of “control”. Mr Bublitz’s exchanges with Mr Ebert about warehousing shares, on

30 January 2009 and 9 February 2009, can be interpreted as demonstrating a similar approach.

[43] Nevertheless, Toogood J found that the execution of the plan continued throughout 2009, resulting in the concealment of Mr Bublitz’s close involvement with Viaduct. Toogood J described the conduct during this period as being “at the margins of legality” and that “sailing so close to the wind” meant that it was almost inevitable that, as the Hunter Group’s prospects deteriorated, that conduct would “cross the line into criminality”.34

[44] I again interpolate to note that it is this conduct (over the period January to December 2009) which the Court of Appeal considered Toogood J wrongly took into account at sentencing, given the activity in 2009 was not proved to be illegal and Mr Bublitz and Mr McKay retained the presumption of innocence in respect of it.

[45] Toogood J also described Viaduct’s operation as characterised by Mr Bublitz and Mr McKay (and others) taking “decisions about the operation of Viaduct which, whenever it was relevant, usually if not always put the Hunter Group’s interests ahead of those of Viaduct and its investors”.35 In a similar tone, Toogood J described Mr McKay’s involvement in the operation of Viaduct’s business as a “gross dereliction of his duties as a director, favouring Hunter Group interests over those of Viaduct and the investors to whom it owed duties of care”.36

The motivation for the offending

[46] Toogood J concluded that the motivation for the steps taken by Mr Bublitz and Mr McKay (and others) was ultimately to protect Mr Bublitz’s investment in the Hunter Group. The Judge’s findings in this regard are captured in the following extract from his reasons for verdicts:

[264] In complex cases such as this, a seemingly inconsequential piece of evidence sometimes captures the essence of a position one or other of the parties is advocating. On 29 March 2010, Mr McKay sent an email to Mr Bublitz, Mr Blackwood and Mr Chevin (using his own and the recipients’ personal email addresses) which neatly encapsulates the Crown’s core

34 Sentencing notes, above n 4, at [45].
35 At [40].
36 At [43].

proposition on the defendants’ motivations. Apparently, Mr McKay was responding to a question Mr Bublitz asked him that day about why it was so difficult to get anything like information memoranda and capital raisings done. Mr McKay said:

We are spending a huge amount of time every week fighting fires - be it Kiwibank, IRD, Hilltop creditors, keeping VCL afloat ... all these issues are major drains in time that is not being dedicated to ‘operating the business’ - it feels like a full time job just to keep on top of the cash flow and cash management issues around the group because cash is so tight. We are barely running the businesses that we have because so much time is devoted to stopping it all from falling over ...

What is the business of Hunter Capital?? If it is to run a finance company then lets just do that, if it is to do property developments then do just that
... Apart from digging PB out of the shit just what are we trying to achieve??

[265] Not much more needs to be said. It is plain that the focus of the efforts of Mr Bublitz, Mr McKay, Mr Blackwood and Mr Chevin in managing the affairs of Viaduct Capital and Mutual Finance was to save Mr Bublitz’s investments in the Hunter Group entities.

[47] The Court of Appeal observed that Mr Bublitz’s offending “was partly motivated by the prospect of personal gain”, though noting that neither he nor Mr McKay made any such gain in the end.37 Indeed, the Court noted, as Toogood J had also accepted, Mr Bublitz had lost well over $2 million of his own money attempting to “rescue the situation”.38

[48] Consistent with these observations, the Registrar does not suggest on the present application that Mr Bublitz or Mr McKay gained anything from their offending.

The scale of the offending/losses caused

[49]Toogood J accepted the Crown’s calculations that:39

(a)the offending in relation to transactions between Viaduct and Mutual, being 16 in total, saw Mutual purchase $3.9 million in loans from Viaduct in breach of the Mutual Crown guarantee (though only three of those transactions were the subject of charges 10 to 12); and

37 Appeal judgment, above n 5, at [159].
38 At [159], citing Sentencing notes, above n 4, at [71(c)].
39 Sentencing notes, above n 4, at [28]–[29] and [53].

(b)the offending in respect of charge 13 involved Mutual lending $208,444 to Hilltop.

[50] On Mr Bublitz’s sentence appeal, however, the Court of Appeal stated that transactions not the subject of charges should not have been taken into account for sentencing purposes. The Court accordingly narrowed the total losses flowing from the transactions the subject of charges 10 to 13 to $1.17 million, with $310,000 of that having been repaid, leaving a final loss of $860,000.40

Mr Bublitz’s and Mr McKay’s culpability/personal circumstances

[51] As to Mr Bublitz’s and Mr McKay’s relative culpability, Toogood J said the following at sentencing:

[46] As to the culpability of each of you, relative to other cases and particularly to each other, it is clear to me that Mr Bublitz, as the person who stood to lose from the failure of the entities engaged in the projects being carried out by the Hunter Group, was the prime mover and instigator of the plan to use one or more finance companies to fund Hunter Group activities. I have found that you had real or effective control over Viaduct throughout, Mr Bublitz, even though it was not sufficient to make you and the other defendants guilty of the charges founded on the Viaduct trust deed. Although you did not give evidence, it is clear to me from the tone and content of the numerous memoranda and email exchanges I have read, that you have a strong and forceful personality. As I found, nothing was done that was contrary to your wishes or that was not, in most cases, approved by you. You stood to gain most from the successful use of the investor funds in both finance companies and, conversely, you were the most at risk if the scheme failed. I rate your culpability as significantly higher than that of the other defendants.

[47] Mr McKay, you were the principal architect of the scheme, being a knowledgeable and capable manager. You were the person, above all others, who was intimately acquainted with the often-precarious positions in which the Hunter entities, Viaduct and Mutual were placed from time to time during the relevant period. I accept that your engagement did not provide lucrative benefits for you, although you would have gained something if Mutual had operated successfully after it was acquired by Mr Bublitz. I accept also that you were subject to Mr Bublitz’s dominant personality and to his effective control. I place your culpability, therefore, as being somewhat lower on the scale than that of Mr Bublitz.

40 Appeal judgment, above n 5, at [151]–[152]. For the sums attaching to each charge, see Sentencing notes, above n 4, at [24]–[27]. Mr McKay did not face charge 13, which concerned an advance from Mutual to Hilltop of $208,000. This further reduces the losses flowing from his offending.

[52] Toogood J described the offending as “calculated”, rather than a momentary lapse of judgment.41

[53] Nevertheless, when measured against other offending in the context of finance company failures, Toogood J found that Mr Bublitz’s and Mr McKay’s culpability was lower than in some of those cases.42 The Court of Appeal agreed.43

[54] Toogood J also accepted that it was unlikely that either Mr Bublitz or Mr McKay would be in a position to offend in a similar way in the future, and described each of them as representing “low risks of re-offending”.44 The Judge also observed that until the investigation and prosecution leading to the charges, each of Mr Bublitz and Mr McKay had conducted themselves in business for many years without running afoul of the criminal law.45 He also noted that each of the defendants was ruined financially, and had little or no prospect of successfully reinstating their careers.46

[55] Finally, in terms of remorse, Toogood J accepted that it is not always easy to demonstrate remorse “while running defences that were properly open to” Mr Bublitz and Mr McKay.47 The Judge ultimately allowed a modest discount to the sentences for “some remorse”.48

Further evidence on the Registrar’s application

[56] As noted earlier, the above factual background is drawn directly from Toogood J’s reasons for verdicts, his sentencing notes and the Court of Appeal’s judgment on the conviction and sentence appeals.

[57] In support of its application, the Registrar filed an affidavit of Mr Gareth Bostock, the then Head of Evidence and Investigations at the FMA. While

41 Sentencing notes, above n 4, at [94].
42 At [78].
43 Appeal judgment, above n 5, at [156].
44 Sentencing notes, above n 4, at [13].
45 At [99].
46 At [99].
47 At [98].
48 At [101].

neither Mr Bublitz nor Mr McKay formally opposed the admissibility of the affidavit, I have real concerns about its admissibility and ultimately have not found the evidence helpful, let alone substantially helpful.49

[58] Mr Bostock does not suggest he has any first-hand knowledge of the factual events giving rise to Mr Bublitz’s and Mr McKay’s offending. Nevertheless, he purports to give evidence as to “the broader context and background relating to Mr Bublitz and Mr McKay’s convictions”, and provides “an overview of their offending before addressing the courts’ findings in respect of their individual culpability”. Mr Bostock then goes on to summarise the offending, referencing in parts Toogood J’s reasons for verdicts. The last part of his affidavit is a summary of each of Mr Bublitz’s and Mr McKay’s culpability, largely but not wholly by reference to Toogood J’s sentencing notes.

[59] It will be apparent that Mr Bostock’s evidence is not as to factual matters of which he has any personal knowledge or involvement; nor do I consider his evidence to be admissible expert opinion evidence. Much of the affidavit is simply an abridged summary of Toogood J’s reasons for verdicts and sentencing notes. Mr Bostock does not suggest he has particular expertise in summarising court judgments. There is also a real danger, in my view, that the deponent of an affidavit of this nature will (subconsciously) cherry-pick out of very lengthy reasons for verdicts and sentencing notes those aspects that suit the Registrar’s case, and then overlay that with commentary involving (again subconsciously) a certain amount of “spin”.

[60] Most of Mr Bostock’s affidavit could and should have been dealt with in counsel’s submissions. I should emphasise that I do not intend to be critical of Mr Bostock personally; he was no doubt attempting to be helpful in summarising for the Court a significant volume of underlying source material. But it is Toogood J’s factual findings themselves that are relevant and admissible evidence, not Mr Bostock’s commentary on or summary of those findings.

[61] Neither Mr Bublitz nor Mr McKay gave evidence (by way of affidavit) in opposition to the Registrar’s application. Mr Bublitz did, however, file an affidavit by

49 For the purposes of s 25 of the Evidence Act 2006 (expert opinion evidence).

Mr Lance Morrison. Mr Morrison was a co-defendant at the first trial, but no charges were brought against him in the second trial before Toogood J. Mr Morrison is an accountant by training and gives evidence of being involved in some of Mr Bublitz’s businesses since meeting him in 1990. Mr Morrison’s affidavit is a mix of opinion evidence about Mr Bublitz’s business dealings more generally (the gist being that over many years Mr Bublitz has been successful in business) and evidence of his own involvement in and opinions in relation to a number of the transactions in issue before Toogood J.

[62] Again, I found this evidence of limited assistance. Given Mr Morrison’s connections with Mr Bublitz, and the fact he was a defendant in the first trial, his evidence could hardly be described as independent. Much of his affidavit is devoted to explaining why, in his opinion, Mr Bublitz’s offending was not as “bad” (my word, not Mr Morrison’s) as the Registrar seeks to paint it. Again, much of this evidence is properly the domain of submissions. Further, aspects of his affidavit are inadmissible hearsay evidence, including in relation to Mr Bublitz’s own statements and view.50

[63] In the event, Mr Dufty, counsel for Mr Bublitz, relied on Mr Morrison’s affidavit solely by way of a character reference for Mr Bublitz and I have accordingly approached it on that basis.

[64] The Registrar also filed an affidavit in reply to Mr Morrison’s affidavit, by Ms Rachael Manttan. By the time of filing her affidavit in reply, she had taken over the role of Head of Evidence and Investigations at the FMA from Mr Bostock.

[65] Ms Manttan’s affidavit suffers from a number of the same defects as Mr Bostock’s. She has no first-hand knowledge of the matters in issue. Much of her affidavit could and should have been addressed by counsel’s submissions. For example, Ms Manttan purports to give “evidence” on why she does not consider Mr Morrison’s affidavit to be admissible. Other examples are commentary on Toogood J’s question trail, what is essentially submission on why aspects of

50 Mr Morrison filed a second affidavit accepting that aspects of his affidavit were inadmissible and confirming that he did not rely on those aspects.

Mr Morrison’s affidavit ought not to be accepted,51 and Ms Manttan’s personal views on the reasons why Mutual failed (based on her “understanding” of the evidence before Toogood J).52

[66] Ms Manttan also provides opinion evidence that it may have been possible to put Mutual into receivership at an earlier point in time, but “[a]s the evidence led at trial showed, Mutual was in breach of its trust deed in May 2010 but Mr McKay and Mr Bublitz’s accounting ensured that the trustee was not alerted to that breach”. Ms Manttan does not purport to have any particular expertise to express such opinions,53 nor does she suggest Toogood J made any finding to this effect. Indeed, as far as I can discern, nowhere in his 315 paragraph reasons for verdicts does Toogood J even discuss this issue. Ultimately, given the nature of the evidence advanced on the present application, it is neither possible nor appropriate for me to make any factual findings on why Mutual failed, or whether it would have been possible to put it into receivership at an earlier point in time.

[67]I turn now to the legal principles arising on the present application.

Legal principles

The statutory provisions

[68] The provisions concerning prohibition of a person from being a director or promoter of a company fall within Part 21 of the Act, “Offences and penalties”.

[69] Section 382 provides for an automatic five-year ban from being a director or a promoter in certain circumstances:

382Persons prohibited from managing companies

(1)Where—

51     Namely his reference to after the event reports on whether the transactions in issue were on arm’s length terms.
52     I acknowledge that this is in reply to Mr Morrison’s stated “understanding” of why Mutual failed. But two wrongs do not make a right.
53     Nor does Ms Manttan confirm that she has read and abides by the code of conduct for expert witnesses set out in Schedule 4 to the High Court Rules 2016.

(a)a person has been convicted of an offence in connection with the promotion, formation, or management of a company (being an offence that is punishable by a term of imprisonment of not less than 3 months), including an offence under section 138A; or

(b)a person has been convicted of an offence under any of sections 377 to 380 or of any crime involving dishonesty as defined in section 2(1) of the Crimes Act 1961; or

(ba) a person has been convicted of an offence under section 143A(1)(d) or 143B(1) of the Tax Administration Act 1994; or

(bb) a person has been convicted of an offence under section 148 of the Tax Administration Act 1994 of aiding, abetting, inciting, or conspiring with another person to commit an offence against section 143B(1) of that Act,—

(c)[Repealed]

that person shall not, during the period of 5 years after the conviction or the judgment, be a director or promoter of, or in any way, whether directly or indirectly, be concerned or take part in the management of, a company, unless that person first obtains the leave of the court which may be given on such terms and conditions as the court thinks fit.

…

[70] Section 383 empowers the Court to make an order prohibiting a person from being a director or promoter of a company (which I will refer to in this judgment as a “prohibition order”). It is necessary to set out the provision in full:

383Court may disqualify directors

(1)Where—

(a)a person has been convicted of an offence in connection with the promotion, formation, or management of a company (being an offence that is punishable by a term of imprisonment of not less than 3 months), including an offence under section 138A, or has been convicted of a crime involving dishonesty as defined in section 2(1) of the Crimes Act 1961; or

(b)a person has committed an offence for which the person is liable (whether convicted or not) under this Part; or

(ba) a person has been convicted of an offence under section 143A(1)(d) or 143B(1) of the Tax Administration Act 1994; or

(bb) a person has been convicted of an offence under section 148 of the Tax Administration Act 1994 of aiding, abetting, inciting, or conspiring with another person to commit an offence against section 143B(1) of that Act; or

(c)a person has, while a director of a company and whether convicted or not,—

(i) persistently failed to comply with this Act, the Financial Markets Conduct Act 2013, the Takeovers Act 1993, or the takeovers code in force under that Act or, if the company has failed to so comply, persistently failed to take reasonable steps to obtain compliance with those Acts or the code; or

(ii) been guilty of fraud in relation to the company or of a breach of duty to the company or a shareholder; or

(iii) acted in a reckless or incompetent manner in the performance of his or her duties as director; or

(ca) a person has been prohibited in a country, State, or territory outside New Zealand from carrying on activities that the court is satisfied are substantially similar to being a director or promoter of or being concerned or taking part in the management of a body corporate; or

(d)[Repealed]

(e)a person has become of unsound mind,—

the court may make an order that the person must not, without the leave of the court, be a director or promoter of, or in any way, whether directly or indirectly, be concerned or take part in the management of, a company permanently or for a period specified in the order.

(1A) The court may make an order under this section permanent or for a period longer than 10 years only in the most serious of cases for which an order may be made.

(2)A person intending to apply for an order under this section must give not less than 10 days’ notice of that intention to the person against whom the order is sought, and on the hearing of the application the last- mentioned person may appear and give evidence or call witnesses.

(3)An application for an order under this section may be made by the Registrar, the FMA, the Official Assignee, or by the liquidator of the company, or by a person who is, or has been, a shareholder or creditor of the company.

(3A) Subsection (3B) applies on the hearing of—

(a)an application for an order under this section by the Registrar, the FMA, the Official Assignee, or the liquidator; or

(b)an application for leave under this section by a person against whom an order has been made on the application of the Registrar, the FMA, the Official Assignee, or the liquidator.

(3B) The Registrar, the FMA, the Official Assignee, or the liquidator (as the case may be)—

(a) must appear and call the attention of the court to any matters that seem to him, her, or it to be relevant; and

(b) may give evidence or call witnesses.

(4)An order may be made under this section even though the person concerned may be criminally liable in respect of the matters on the ground of which the order is to be made.

(4A) If conduct by a person constitutes grounds for making an order under any 1 or more of this section, section 44F of the Takeovers Act 1993, and subpart 6 of Part 8 of the Financial Markets Conduct Act 2013, proceedings may be brought against that person under any 1 or more of those provisions, but no person is liable to more than 1 order under those provisions for the same conduct.

(5)The Registrar of the court must, as soon as practicable after the making of an order under this section, give notice to the Registrar that the order has been made and the Registrar must give notice in the Gazette of the name of the person against whom the order is made.

(6)Every person who acts in contravention of an order under this section commits an offence and is liable on conviction to the penalties set out in section 373(4).

(7)In this section, company includes an overseas company.

[71] It will be apparent that s 383 has wider application than s 382. In particular, the Court may make a prohibition order in circumstances where a person has not been convicted of any particular offence, as provided for in s 383(1)(b), (c), (ca) and (e).

Approach to prohibition orders

[72] The Registrar’s application for prohibition orders in relation to Mr Bublitz and Mr McKay is only the second time that an application has been made by the Registrar under s 383. However, s 383’s predecessor, s 189(1)(c) of the Companies Act 1955, was drafted in substantially similar terms and was considered by this Court in First City Corporation Ltd v Downsview Nominees Ltd (Downsview). In that case, Gault J described s 189(1)(c) as:54
…. providing for denial of the privilege of participating in the conduct of business under the shelter of limited liability. It is penal in nature although

54 First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710 (HC) at 766.

the disqualification should be approached with protection of the public in mind rather than punitively.

The section must be read with s 188A which imposes automatic disqualification of five years in those circumstances which are also covered by s 189(a), (b) and (d). So far as they have been retained in s 189 they will be resorted to when disqualification for a period longer than five years is seen to be warranted.

[73]Gault J further observed that:55

… the whole structure and context of the section suggests to me that it is aimed not at minor acts of negligence or carelessness, but at conduct that is wilful or deliberate or culpable so as to involve dishonesty or gross or serious failure to meet the relevant standards to be expected of an officer of the company. In assessing conduct in particular cases, any motive for the conduct as well as the seriousness of the consequences will be relevant. Previous instances of misconduct may lead the Court to be more likely to exercise the discretion it has under the section to order disqualification.

[74] Gault J summarised the conduct in issue in Downsview in the following terms:56

I already have held that continuing to trade in the circumstances that he did, amounted to recklessness by Mr Russell. He stood in a position where clearly his own interest and his duties to others were in conflict. He failed properly to inform himself of the financial status of the company or its trading performance. He misrepresented the position to others. He resisted, with determination, the efforts of the plaintiffs to bring that state of affairs to an early end by legitimate and entirely appropriate procedures. In result, for a substantial period, he operated the company and its subsidiary to serve his own purposes.

[75]In concluding that a prohibition order was appropriate, Gault J concluded:57

I am satisfied that the public and commercial community [should] be protected from the risk of a repetition of reckless and incompetent conduct of this kind. From the confident, almost arrogant manner in which he gave his evidence, I was led to the view that this is not a situation where the Court might safely rely upon contrition and a determination to reform his practices. Accordingly, there will be an order for disqualification for a period of five years.

[76]Miller J considered similar issues, albeit in the context of s 385 of the Act, in

Davidson v Registrar of Companies (Davidson).58 Section 385 provides that the

55     At 766.
56     At 767.
57     First City Corporation Ltd v Downsview Nominees Ltd, above n 54, at 768.
58     Davidson v Registrar of Companies [2011] 1 NZLR 542 (HC).

Registrar or the FMA may prohibit a person from managing a company where that person has been involved in the management of a company in some form of insolvency, and the management of the company was wholly or partly responsible for the company’s precarious position. Having referred to Gault J’s observations in Downsview in relation to s 383’s predecessor, Miller J stated:59
Prohibition is aimed not at remedying wrongs done to shareholders and creditors of the insolvent company but at protecting the public from unscrupulous or incompetent directors in future, deterring others and setting appropriate standards of behaviour.

[77] The overall purpose of prohibition orders was also considered by Venning J in Registrar of Companies v Blake (Blake).60 Blake was the first application by the Registrar for a prohibition order under s 383. Venning J contrasted s 383 with s 385 of the Act, stating:

[40] The focus of s 385 is, as noted, directed more towards mismanagement leading to the failure of the company, rather than misconduct. Section 383 is, on the other hand, directed at individual misconduct rather than mismanagement. Ms Blythe submitted that both aspects, personal misconduct and mismanagement were engaged in the present case. While I accept that as part of the overall consideration mismanagement is also relevant, the proper focus on an application under s 383 is on misconduct, particularly when considering an application to impose a ban of longer than 10 years and, in the worst cases, a permanent ban.

[78] Venning J also had regard to similar provisions under Australian companies legislation. He endorsed the following propositions set out by Santow J in Australian Securities and Investments Commission v Adler, which Venning J described as capturing a number of the observations of Gault J in Downsview and Miller J in Davidson:61
(i)Disqualification orders are designed to protect the public from the harmful use of the corporate structure or from use that is contrary to proper commercial standards. …;

(ii)The banning order is designed to protect the public by seeking to safeguard the public interest in the transparency and accountability of companies and in the suitability of directors to hold office …;

59 At [91], citing Re Blackspur Group plc [1998] 1 WLR 422 (CA) at 426 per Lord Woolfe MR; and Rich v Australian Securities and Investments Commission [2004] HCA 42, (2004) 220 CLR 129 [Rich v ASIC] at 145.
60 Registrar of Companies v Blake [2019] NZHC 680.
61 Australian Securities and Investments Commission v Adler [2002] NSWSC 483, (2002) 42 ACSR 80 at [56], citations omitted.

(iii)Protection of the public also envisages protection of individuals that deal with companies, including consumers, creditors, shareholders and investors …;

(iv)The banning order is protective against present and future misuse of the corporate structure …;

(v)The order has a motive of personal deterrence, though it is not punitive
…;

(vi)The objects of general deterrence are also sought to be achieved …;

(vii)In assessing the fitness of an individual to manage a company, it is necessary that they have an understanding of the proper role of the company director and the duty of due diligence that is owed to the company …;

(viii)Longer periods of disqualification are reserved for cases where contraventions have been of a serious nature such as those involving dishonesty …;

(ix)In assessing an appropriate length of prohibition, consideration has been given to the degree of seriousness of the contraventions, the propensity that the defendant may engage in similar conduct in the future and the likely harm that may be caused to the public …;

(x)It is necessary to balance the personal hardship to the defendant against the public interest and the need for protection of the public from any repeat of the conduct …;

(xi)A mitigating factor in considering a period of disqualification is the likelihood of the defendant reforming …

[79] As will be apparent, a common theme of the above decisions is that the predominant purpose of prohibition orders is the protection of the public. For this reason, when considering whether a prohibition order ought to be made (and if so, for how long), the Court is engaged in a forward-looking exercise. The respondent’s predilection to engage in future conduct of the nature giving rise to the application will therefore be highly relevant to whether a prohibition order ought to be made and if so, for how long. For example, in Blake, Venning J considered there was a “high likelihood” that Mr Blake would engage in similar conduct to that giving rise to the application.62 A 12 year prohibition order was imposed. In Downsview, Gault J said it was “not a situation where the Court might safely rely on contrition and a

62 Registrar of Companies v Blake, above n 60, at [68].

determination [on Mr Russell’s part] to reform his practices”, and imposed a five-year prohibition order.63

[80] Concepts of general deterrence and setting appropriate standards of behaviour will also be relevant.64 These too are aimed at the overall protection of the public.

[81] In all of these contexts, the seriousness of the conduct in question will be relevant. It will, for example, provide the “baseline” from which the Court will consider the respondent’s propensity to engage in similar conduct in the future. Further, those involved in the management of companies ought to be aware that serious misconduct will likely result in a prohibition order. Nevertheless, in my view, care must be taken not to let the seriousness of the conduct overwhelm the forward-looking exercise the Court must carry out. There may equally be compelling evidence that the respondent has reformed and thus is highly unlikely to offend or behave in a similar way in the future.

Evidence on a prohibition order application

[82] Given the issues for consideration on an application for a prohibition order, a broad scope of evidence is likely to be relevant to whether such an order ought to be made. The evidence need not be confined to the conduct giving rise to the threshold ground for the application but might include, for example, the respondent’s conduct in the management of a company or companies in general. That conduct need not be unlawful.

[83] Venning J made similar observations in Blake when discussing the scope of evidence to which the Court may have regard when determining whether or not to impose a prohibition order. He stated:65
Mr Blake’s personal bankruptcies and the failure of the companies he was involved in with the subsequent losses to creditors are not, of themselves, qualifying criteria for an order under s 383. But once the criteria for an order are established, the Court is entitled to look at the broader context and background behaviour of the respondent to determine if an order should be

63     First City Corporation Ltd v Downsview Nominees Ltd, above n 54, at 768.
64     As noted in Australian Securities and Investments Commission v Adler, above n 61, at [125]; and by Miller J in Davidson v Registrar of Companies, above n 58, at [91].
65     Registrar of Companies v Blake, above n 60, at [60].

made and if so, for how long. Personal financial failures and the failure of companies with which a respondent is associated with may be an indicator of recklessness towards obligations which would be a relevant consideration. …

[84] I mention these matters given the Registrar says that Mr Bublitz’s and Mr McKay’s conduct, which was the subject of adverse comment by Toogood J but was not itself held to be unlawful, is nevertheless relevant to the present application. The Registrar argues that simply because the Court of Appeal held that it was inappropriate to have taken that conduct into account at sentencing does not mean it ought not to be taken into account on the present application. I agree.

“The most serious of cases”: is s 8(c) of the Sentencing Act 2002 relevant?

[85] A prohibition order may only be made for a period of more than 10 years if the Court is satisfied that the case before it is one of “the most serious of cases for which an order may be made”.66 Section 8(c) of the Sentencing Act requires a sentencing court to impose the maximum penalty prescribed for an offence if the offending “is within the most serious of cases for which that penalty is prescribed”. I raised with counsel at the hearing whether s 8(c) was relevant to the assessment under s 383(1A), given neither Mr Bublitz nor Mr McKay was sentenced to anywhere near the maximum penalty prescribed for their offending. Counsel filed supplementary submissions on this and other matters.

[86] Both Mr McMullan for the Registrar and Mr Dufty submit, and I agree, that in cases where the threshold ground for a prohibition order is a conviction, an assessment of whether that case is the most serious of cases for which an order may be made is not directly informed by the penalty imposed for the conviction. As both counsel submit, the purposes of s 8(c) of the Sentencing Act and s 383(1A) of the Act are quite different, as their text and context make clear. In particular, s 8(c) is one of a number of principles to be taken into account when sentencing an offender, in the context of the sentencing purposes set out in s 7 of the Sentencing Act. Those purposes are diverse and include holding the offender accountable for their offending, providing for the interests of the victim, denouncing the offender’s conduct, personal and general deterrence, protection of the community from the offender and assisting in the

66 Companies Act, s 383(1A).

offender’s rehabilitation. Section 383, on the other hand, has a narrower remit, directed to the protection of the public.

[87] In addition, a qualifying event for making a prohibition order under s 383 extends beyond criminal conduct. I therefore accept Mr McMullan’s submission that the directive that a prohibition order may be made permanently or for a period longer than 10 years only in the most serious of cases must have broader content than by reference to how the underlying conduct was assessed for the purposes of sentencing.

[88] This position is also consistent with the plain text of the section, which provides that the seriousness of the index case is to be considered against those other “cases for which an order may be made”.67 Section 383(1A) is not triggered only in the most serious of cases of the type before the court. As Mr McMullan submits, the collection of cases that qualify for a prohibition order under s 383 is broad and captures not only conduct that does not give rise to offending, but also offences that carry a maximum penalty of a $5,000 fine68 and those carrying a maximum penalty of 14 years’ imprisonment.69 I agree that it cannot have been Parliament’s intention that a decision to prosecute a person for a less serious charge could result in an increased likelihood of a long prohibition order simply because the offending is assessed as being the most serious of cases for which that penalty is prescribed. To use the example given by Mr McMullan, it cannot be that a person who commits a fine-only offence contrary to the Act, but in the worst possible way, should be liable to a longer prohibition than someone who commits the more serious offence of blackmail, merely because the index blackmail offending was not the worst of its type.

[89] I accordingly accept that it is the particular conduct in question that is to be assessed for the purposes of s 383(1A), whether it constitutes offending or not. I also accept this will necessarily include an assessment of the type of conduct in question (as against the other types of conduct for which prohibition orders might be made) as well as the seriousness of the conduct (as against misconduct of that type and which shares the same penalty).

67     Section 383(1A).
68     Sections 383(1(b)) and 373(1).
69     See Crimes Act 1961, s 2 (definition of “crime involving dishonesty”) and ss 237–238.

Is a prohibition order a penalty?

Introduction

[90] In his oral submissions at the hearing, Mr Dufty submitted that the prohibition order of more than 10 years sought by the Registrar is not available in this case, given subs (1A) only came into force on 1 April 2014, whereas the conduct giving rise to Mr Bublitz’s (and Mr McKay’s) convictions occurred in 2010. Mr Dufty submitted that a prohibition order is a penalty for the purposes of s 6 of the Sentencing Act and s 25(g) of the Bill of Rights Act, or that even if not, the presumption that legislation does not have retrospective effect applies. Given these issues had not been addressed in any party’s written submissions and, as will be evident from the following discussion, they are matters of some complexity, I called for further submissions, which I outline below.

[91] I begin by addressing the question of penalty, before considering whether s 383 has retrospective effect.

The Registrar’s submissions on penalty

[92] Mr McMullan submits that a prohibition order under s 383 is not a penalty for the purposes of s 6 of the Sentencing Act or s 25(g) of the Bill of Rights Act. He submits that the proper approach to assessing whether an order is a penalty for these purposes is best highlighted by two recent decisions, namely the Court of Appeal’s decision in Chisnall v Attorney-General and the Supreme Court’s decision in D (SC 31/2019) v New Zealand Police.70 In Chisnall, the Court of Appeal considered whether an extended supervision order (ESO) and a public protection order (PPO) are penalties. In D (SC 31/2019) v New Zealand Police, the Supreme Court considered whether registration of an offender under the Child Protection (Child Sex Offender Government Agency Registration) Act 2016 is a penalty (and thus whether the statutory regime could have retrospective effect).

70 Chisnall v Attorney-General [2021] NZCA 616, [2021] 2 NZLR 484; and D (SC 31/2019) v New Zealand Police [2021] NZSC 2, [2021] 1 NZLR 213.

[93] Mr McMullan notes that the main factor the Court in Chisnall identified as indicative of a penalty is that ESOs are imposed through the criminal justice system and place significant restrictions on a person, including detention. Mr McMullan also notes that the Supreme Court in D (SC 31/2019) v New Zealand Police was influenced by the fact that registration (at sentencing) takes place in the criminal sphere and also restricts a person’s liberty. He argues that a prohibition order under s 383 shares few of these attributes: it does not restrict any rights protected by the Bill of Rights Act, and instead is simply the denial of the privilege of participating in the conduct of business under the shelter of limited liability.

[94] Mr McMullan further submits that orders made under s 383 are civil in nature, victims have no rights in relation to them, there is no power to compel a respondent’s attendance at the hearing and the High Court Rules 2016 apply. Further, and unlike applications for ESOs, PPOs and registration as a child sex offender, a conviction is not a prerequisite to a prohibition order being made. Mr McMullan also submits that the fact standing to apply for such an order is not limited to the responsible government agency or member of the executive, but extends to any shareholder or creditor of the company concerned, reinforces the conclusion that prohibition orders are not penalties. Mr McMullan also refers to Daniels v Thompson, in which the Court of Appeal concluded that despite the clearly punitive nature of exemplary damages, such damages are nevertheless not a penalty for the purposes of the Bill of Rights Act.71

The respondents’ submissions on penalty

[95] Mr Dufty, on the other hand, argues that prohibition orders under s 383 amount to a penalty for the purposes of s 25(g) of the Bill of Rights Act and s 6 of the Sentencing Act.72 He refers to the following factors:

(a)although prohibition orders are approached with public protection in mind (similar to ESOs, PPOs and registration orders), they clearly have a punitive effect on the persons subject to them;

71 Daniels v Thompson [1998] 3 NZLR 22 (CA).
72 Mr McKay adopts Mr Bublitz’s submissions on this issue.

(b)s 383 falls under Part 21 of the Act, “Offences and penalties”;

(c)prohibition orders imposed pursuant to s 383(1)(a), (b), (ba) and (bb) are consequences flowing from a conviction;

(d)contravention of a prohibition order itself constitutes a criminal offence;73 and

(e)a person’s disqualification from acting as a director is a matter of public record, being published and searchable by the public on the Companies Register.

[141] Mr McMullan also refers to a similar approach taken by the England and Wales Court of Appeal in R v Field.125 Putting aside the issue in that case of whether the order in question was a penalty, in Field the Court endorsed the Secretary of State’s submission that:126

… the purpose of section 28 is plainly to protect children. That purpose would be severely undermined if a disqualification order could only be imposed in relation to offences committed after the section came into force. The court should take a more relaxed approach to a potentially retro-active element in legislation where its intended purpose is to protect the public.

[142] Mr McMullan further submits that support for this approach can be drawn from context provided by other provisions of the Act, and in particular, transitional provisions. He notes that earlier amendments to s 383 (by the Companies Amendment Act (No 2) 2006)127 contained no transitional provisions, whereas the same amending legislation included transitional provisions for companion amendment to the qualification of directors. He also notes that when a further restriction was inserted into s 151(2) of the Act in relation to the qualification of directors (by s 5 of the Companies Amendment Act (No 2)), a transitional provision was included upon recommendation by the select committee.128 The provision ensured that current directors who were subject to overseas prohibition orders were not automatically disqualified from directorship. Mr McMullan argues that if Parliament was similarly concerned with the Court disqualifying people from being directors in those circumstances, it would have said so.

[143] Mr McMullan also refers to the transitional provisions in the Financial Markets (Repeals and Amendments) Act 2013, which brought into force s 383(1A). He notes that that Act did not contain a specific transitional provision in relation to subs (1A), and in the legal landscape summarised above, says Parliament was right not to do so

125   R v Field, above n 89.
126 At [60].
127   Inserting s 383(1)(ca).
128   Business Law Reform Bill 2006 (64-2) (select committee report) at 2.

because it did not need to. He again refers to Tipping J’s judgment in Dental Council of New Zealand v Bell, in which his Honour stated:129

The absence of any transitional provisions bearing on this question must in my view signal the fact that Parliament meant the new provisions to take over substantively as well as procedurally and to relate to all conduct of which complaints were made after the passing of the new Act, irrespective of when that conduct occurred.

Respondents’ submissions on retrospectivity

[144] Mr Dufty submits that even if prohibition orders are not considered a penalty under s 6 of the Sentencing Act and s 25(g) of the Bill of Rights Act, the same protection against retrospective penal legislation offered by those provisions should extend to persons in Mr Bublitz’s position, given the “closely analogous, quasi-criminal nature of banning orders”.130 He submits that the principles underlying the presumption, and in particular that the legislature does not intend to be unjust,131 ought to be given their full effect here, given what he submits to be the analogy between a prohibition order and a criminal penalty. Mr Dufty refers in this regard to the Supreme Court’s decision in Marwood v Commissioner of Police, in which the Court held that, similar to the approach taken in analogous criminal proceedings, improperly obtained evidence collected by the Crown may be excluded in civil proceedings under the Criminal Proceeds (Recovery) Act 2009.132 Mr Dufty notes that this approach has since been applied in the professional disciplinary and contempt of court contexts. 133

[145] In terms of the Registrar’s reliance on the absence of transitional provisions when subs (1A) was enacted, Mr Dufty submits that the starting point under s 12 of the Legislation Act is that Parliament must clearly provide for retrospectivity if such an effect is intended, and not the other way around. He therefore argues that the mere absence of transitional provisions does not assist the Registrar’s case. Mr Dufty also notes that transitional provisions are often unintentionally omitted by Parliament,

129   Dental Council of New Zealand v Bell, above n 122, at 447.
130   Again, Mr McKay adopts Mr Bublitz’s submissions on this topic.
131   Referring to Asher J’s judgment in Art Deco Society (Auckland) Inc v Auckland City Council, above n 120.
132   Marwood v Commissioner of Police [2016] NZSC 139, [2017] 1 NZLR 260 at [36]–[38].
133   See A Professional Conduct Committee v Health Practitioners Disciplinary Tribunal [2021] NZHC 2249 at [121]–[123]; and Young v Zhang [2017] NZCA 622, [2018] NZAR 207 at [52].

giving as an example the failure of the Sentencing Amendment Act 2007 to address offenders’ appeals against sentences imposed before its commencement, despite express provision dealing with offenders convicted before, but sentenced after, its commencement. Mr Dufty says that the approach adopted in Dental Council of New Zealand v Bell can also be distinguished, as while s 383’s purpose is plainly the protection of the public, it also undoubtedly has a penal effect. Finally, Mr Dufty submits that the approach taken in Dental Council of New Zealand v Bell is now outdated in light of Belcher, Chisnall and D (SC 31/2019) v New Zealand Police, where the Courts considered that the penal nature of the orders was relevant notwithstanding their primary purpose of public protection.

Discussion on retrospectivity

[146] The Registrar’s position is that s 383(1A) applies to all applications made following April 2014. Ultimately, I do not need to decide that point. Rather, the (narrower) issue for my determination is whether s 383(1A) applies in the case of convictions entered after that section came into effect but where the offending occurred prior to its enactment. For the following reasons, I am satisfied that s 383(1A) operates in that way.

[147] First, in the context of the presumption against retrospectivity, the “unjustness” resulting from s 383(1A) having retrospective effect is at the lower end of the scale. The provision does not introduce a wholly new offence or response to certain conduct, but is limited to increasing the potential duration of an existing response. Further, the subject matter of the provision is an order prohibiting a person from being involved in the management of a company. As discussed earlier, such an order has far fewer implications for basic rights, including those protected by the Bill of Rights Act, than those types of orders in issue in the authorities discussed earlier in this judgment. As already mentioned, a prohibition order does not prevent the person subject to it from being employed, or being employed by and involved in a company; rather it simply prohibits the person from being involved in the management of a company. Thus, the presumption against retrospectivity in this case is not particularly strong.

[148] In this context, I disagree with Mr Dufty’s categorisation of s 383 as “quasi-criminal” such that the presumption should be given its full effect. For the reasons discussed in the preceding section of this judgment, the operation of s 383 is not integrated into the criminal justice process, nor does it bear any of the hallmarks of a quasi-criminal process. It would be odd, for example, to describe a prohibition order following a company director becoming of unsound mind as “quasi-criminal”. So too a prohibition order applied for by a shareholder or creditor of a company on the basis of a director’s breach of duties to that company. For these reasons, I do not consider cases such as Marwood v Commissioner of Police to be of assistance.

[149] Second, I am satisfied that the plain and ordinary meaning of s 383 suggests Parliament intended subs (1A) to have retrospective effect. I agree with Mr McMullan that the task of statutory interpretation in this case is similar to that in Director of Public Prosecutions v Lamb, in which Humphreys J described similar statutory language as “perfectly plain and quite unambiguous”.134 Section 383 expressly provides that a trigger for making a prohibition order, including one of 10 years or more, is a conviction for certain offending, rather than the offending itself. The section itself distinguishes between being “convicted of an offence” (s 383(1)(a), (ba) and (bb)) and having “committed an offence” (s 383(1)(b)).

[150] Third, I am satisfied that for subs (1A) to have retrospective effect is consistent with the purpose of the provision, namely the protection of the public. Such a position is also consistent with other grounds for an order under s 383 that are founded on conduct that could take place over a lengthy period of time – namely “persistent” breaches of the Act and mental impairment.135 For example, it would be inconsistent with the protective purpose of s 383 if a prohibition order of 10 years or more could not be made for flagrant and persistent breaches of the Act simply because those breaches that characterise the conduct as “persistent” occurred before subs (1A) came into force.

[151] Finally, I also accept that the approach to transitional provisions referred to by Mr McMullan, and the absence of any transitional provisions in relation to s 383(1A),

134 Director of Public Prosecutions v Lamb, above n 124, at 99.
135 Section 383(c)(i) and (e).

support the conclusion that Parliament intended subs (1A) to have retrospective effect. I do not, however, place significant weight on this factor. Transitional provisions “often tend to become complex, which adds to difficulties in interpretation”.136 The absence of transitional provisions is also not often likely to be determinative.137 Further, and as Mr Dufty submits, the absence of transitional provisions can sometimes be a matter of oversight.138

[152] Drawing these threads together, s 383 does not operate as a penalty. Nor is its operation analogous to a criminal or quasi-criminal process. Section 383’s text is plain and unambiguous. Any unjustness flowing from subs (1A) having retrospective effect is low. And any such unjustness is outweighed by s 383’s purpose of protection of the public.

[153] There is therefore jurisdiction to impose a prohibition on Mr Bublitz and/or Mr McKay of more than 10 years, should I consider that appropriate.

[154]I turn now to the submissions on the Registrar’s application.

The parties’ submissions

The Registrar’s submissions

[155] As noted at the outset, the Registrar applies for a prohibition order of around 12 years from the date of this judgment.139 The Registrar submits that Mr Bublitz’s and Mr McKay’s offending was premeditated and sophisticated, that the case is one of the most serious cases in which a prohibition order can be made (thus enlivening the Court’s jurisdiction under s 383(1A)), and a lengthy prohibition is necessary for the protection of the public.

[156] Mr McMullan submits that as the Court is not sentencing Mr Bublitz or Mr McKay, it is not restricted to considering the actual losses flowing from the

136   Vela Fishing Ltd v Commissioner of Inland Revenue [2002] 1 NZLR 49 (CA) at [26].
137   See Burrows and Carter, above n 117, at 837–838.
138   FM Custodians Ltd v Pati [2012] NZHC 1902 at [32]–[39].
139 Though in his oral submissions at the hearing, Mr McMullan acknowledged that around 12 years in total may be sufficient, that is, including that part of the automatic five-year prohibition under s 382 that has already passed. This implies a further prohibition period of around nine years.

transactions the subject of charges 10 to 13, but can take into account the full suite of transactions between Viaduct and Mutual, and Mutual and Hilltop. On that basis, and taking into account the 16 transactions between Viaduct and Mutual, Mr McMullan submits the losses were substantial, totalling some $3.9 million in relation to the Viaduct transactions, $243,000 in relation to Hilltop and a further $230,000 in relation to NKE Trust Ltd, another Hunter Group entity. Mr McMullan submits that Toogood J’s findings of control and knowledge apply equally to these transactions despite, for efficiency reasons, them not being the subject of separate charges in the second trial.

[157] Mr McMullan submits that the same approach should be taken in relation to the duration of the offending. He urges the Court to have regard to Mr Bublitz’s conduct over the full period of January 2009 to December 2009, and not just the shorter window in which the transactions the subject of charges 10 to 13 took place.

[158] Once that broader context is taken into account, Mr McMullan submits that Mr Bublitz’s conduct, albeit not found to be unlawful in a criminal sense at the second trial, clearly troubled Toogood J who described it as being “at the margins of legality”.140 Mr McMullan says it would be artificial to ignore this broader context, a point made by Toogood J at sentencing.141

[159] Mr McMullan further submits that Mr Bublitz has shown limited remorse and contrition, a point relevant to the forward-looking exercise the Court must conduct. He notes that Toogood J allowed a discount for only “some remorse”.142 Mr McMullan also refers to Toogood J’s observations at sentencing that:143

[Mr Bublitz] displayed [no] real appreciation of the extent to which the way [he] conducted [himself], particularly after the acquisition of Mutual, involved deliberate dishonesty motivated only by a determination to rescue the Hunter Group if that was possible … [He] showed [no] consideration for the interests of the investors at the time of [his] offending.

140 Sentencing notes, above n 4, at [45].
141 At [40].
142 At [101].
143 At [98].

[160] Mr McMullan also refers to Mr Bublitz’s (unsuccessful) application for leave to appeal to the Supreme Court, which he says is further evidence of this lack of contrition.144

[161] Mr McMullan acknowledges on behalf of the Registrar that the criminal proceedings took their toll on Mr Bublitz and that he has undoubtedly suffered significant reputational damage as a result. But Mr McMullan submits these factors should not be given significant weight, given they have already been recognised in the sentence imposed on Mr Bublitz and that they are the natural consequences of his offending in any event. Mr McMullan also submits that any reliance on the suggested absence of any further offending would be misplaced, given Mr Bublitz has not had the opportunity since his convictions to engage in the management of a company (given the automatic five-year prohibition period).

[162] Mr McMullan refers to the 12-year prohibition imposed by Venning J in Blake, noting that while Mr Blake had a much more significant history of misconduct than Mr Bublitz, Mr Blake was not convicted of dishonesty offences nor were the losses involved as significant as in this case.

[163] Mr McMullan makes most of the same points in relation to Mr McKay. While Toogood J found Mr McKay to be less culpable than Mr Bublitz, Mr McMullan submits this was not substantially so. He also refers to Toogood J’s observations as to Mr McKay’s evidence (including being described by the Judge as “evasive”)145 and the Judge’s observation that:146
Although I am prepared to accept that Mr McKay may not have set out to act dishonestly in February 2009, I am satisfied beyond reasonable doubt that from the acquisition of Mutual to the end of the downward spiral, he knew that there had been a complete failure of compliance with his obligations and those of Mr Bublitz and Mr Blackwood under the Crown guarantee. His emails and those of Mr Chevin and others demonstrate that caution had been abandoned because of the desperate circumstances in which they found themselves. As I said, they were reduced to digging Mr Bublitz out of the manure.

144 Bublitz v R [2019] NZSC 138.
145 Reasons for verdicts, above n 3, at [303].
146 At [303].

[164] Mr McMullan accordingly submits that Mr McKay was the “architect of Mr Bublitz’s deceit” and in engaging in the transactions the subject of the charges (and those broader transactions referred to at [156]), he breached his duties as director. Mr McMullan accordingly submits that the public require protection from Mr McKay just as much as from Mr Bublitz.

Mr Bublitz’s submissions

[165] Mr Dufty submits that Mr Bublitz’s offending was not as serious as the Registrar suggests and urges the Court to take into account the Court of Appeal’s observations on the sentence appeal. Mr Dufty also notes that at trial, many charges against Mr Bublitz were either dismissed, withdrawn or not proved.

[166] Mr Dufty submits that the scale of the offending should be limited to what it actually was, namely that period between January and June 2010, and the losses identified by the Court of Appeal of around $860,000. He also refers to Mr Bublitz’s successful and unblemished business career prior to the index offending, to the fact that upon being charged Mr Bublitz voluntarily resigned from several directorships, and that the management ban has severely restricted his ability to earn an income.

[167] Mr Dufty also refers to a number of English cases, not as direct comparators for assessing the length of the prohibition order, but rather for the guidance that can be drawn from them on how the courts categorise the most serious and less serious cases. He notes in particular Re Sevenoaks Stationers (Retail) Ltd, in which Dillon LJ described particularly serious cases warranting a prohibition period of 10 years or more as including where a director who has “already had one period of disqualification imposed on him falls to be disqualified yet again”.147

[168]In terms of prohibition orders made under s 383, Mr Dufty notes that Blake

was decided without reference to the English cases and submits that as a result, the

147 Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 (CA) at 174. In a schedule attached to his submissions, Mr Dufty refers inter alia to R v Ravjani [2012] EWCA Crim 2519, which involved
£100 million obtained by fraud, with bans for 8 to 15 years imposed; and R v Bright [2008] EWCA Crim 462, which involved the collapse of a publicly listed company (the United Kingdom’s 9th largest insurer) with resulting losses of £1 billion, with the defendants’ fraudulent conduct playing a significant part in the scale of the disaster, and bans of 10 and 12 years’ disqualification imposed.

penalty in that case was very high. He submits that Blake is distinguishable from the current case in any event, given Mr Blake’s very poor offending history.

[169] Mr Dufty accepts that Mr Bublitz’s actions might have justified a total effective disqualification period of around seven years, had the period been imposed at the time of Mutual’s collapse in 2010 or shortly thereafter. But he notes that the Registrar now seeks a much lengthier ban some 12 years after the offending occurred. He refers to another English case, R v O’Hanlon, in which the company collapsed in 2003 and the director was not disqualified until 2007, noting that together with personal circumstances, the court deducted three years from the disqualification period.148 Mr Dufty submits that by analogy, a similar lengthy deduction should be made here, in the vicinity of five years, leaving a potential prohibition order of two years, which is moot given the existing five-year automatic ban.

[170] In terms of remorse, Mr Dufty submits that this was well demonstrated at sentencing, including in the pre-sentence report which recorded Mr Bublitz’s remorse as genuine. Mr Dufty also refers to Toogood J’s observation as to the difficulty in demonstrating remorse while at the same time advancing defences that were “properly open” to Mr Bublitz.149

[171] Standing back, Mr Dufty submits it is not necessary for the purpose of the protection of the public to impose a further prohibition period.

Mr McKay’s submissions

[172] Mr McKay, acting for himself on the application, initially took no steps in the proceeding. However, he filed written submissions in opposition to the Registrar’s application, appeared at the hearing and made further oral submissions. The Registrar did not object to this.

[173] Mr McKay adopts and endorses many of the submissions made by Mr Dufty on Mr Bublitz’s behalf. He records at the outset of his written submissions that:

148 R v O’Hanlon [2007] EWCA Crim 3074.
149 Sentencing notes, above n 4, at [98].

I wish to state at the outset that I deeply regret and am ashamed of the conduct of which I have been convicted by this Court. It was never my intention to engage in such conduct and I am burdened with the knowledge that my ignorance and stupidity lead to the actions that took place with [Mutual] that led to the three convictions.

The Applicant makes much of an alleged “lack of remorse”. But this [is] not true. I explained in detail in my initial interview with the Corrections Department my abject disappointment in myself and distaste for what I had done. …

[174] Mr McKay also presented a detailed analysis of his and Mr Bublitz’s offending vis-à-vis a range of other comparable offending cases, at least by charge, and by reference to length of prohibition versus the losses flowing from the offending. Mr McKay’s point from this analysis is that on the scale of other cases involving similar charges, he and Mr Bublitz fall very much at the lower end of culpability.

[175] Mr McKay notes that he has been a company director of only four companies in his career which spans a number of decades,150 and he is therefore not a prolific company creator and director as was the case with Mr Blake. Mr McKay refers to his unblemished record both before and after his index offending, as well as the difficulty and stress inherent in the very lengthy proceedings he has faced, including the long and ultimately aborted trial before Woolford J. He refers to the reputational damage of his offending, that he is “a persona non grata in the most complete sense”, but accepts “[i]t is my lot, by my own hand”. He notes that if a prohibition order of a further 12 years were to be imposed, he would be more than 70 years old by the time it expired. He submits it would have the effect of a lifetime ban for him.

[176] Ultimately, Mr McKay submits that given his unblemished record other than his offending in 2010, that there is no pattern of repeated offending, his low risk of reoffending and the reasonably limited losses flowing from his offending, a further period of prohibition is not appropriate. He submits that the statutory purpose of public protection is well met by the automatic five-year ban, with which he has “no quarrel”.

150 Twenty-three years from his graduation to his offending in 2010.

Analysis – should prohibition orders be made and if so, for how long?

[177] I am satisfied that a further period of prohibition for each of Mr Bublitz and Mr McKay is required. But I consider the appropriate length of that period to be far less than suggested by the Registrar, even on the basis advanced in oral submissions that the overall effective prohibition could be around 12 years. I propose to impose a prohibition order of a period of three years and six months for each of Mr Bublitz and Mr McKay, to run from the date of this judgment. It will therefore expire on 28 February 2026. Together with that part of the five-year prohibition that has already passed, this reflects a total effective prohibition period for each of Mr Bublitz and Mr McKay of seven years. My reasons for reaching this conclusion follow.

[178] First, I accept that, while not resulting in personal gain, Mr Bublitz’s and Mr McKay’s offending was serious. It involved dishonesty and, as Toogood J stated, it was calculated. Mr McKay’s offending also involved a gross dereliction of his duty as a director of Viaduct. In assessing the seriousness of the offending, I am very conscious that the Judge had the benefit of listening to the evidence as it unfolded at trial, and then a significant period in which to consider the undoubtedly vast amount of documentary evidence put before him, before delivering his verdicts and reasons for verdicts. Only a tiny snapshot of the evidence given at trial is before me on the current application. Toogood J’s findings as to the seriousness of the offending accordingly carry significant weight.

[179] Balanced against the seriousness of the offending, however, is that the scale of the offending itself, and the losses flowing from it, were relatively limited. I address further below the Registrar’s submission that the Court should take into account Mr Bublitz’s and Mr McKay’s broader conduct in 2009. But focusing on the offending itself, it was limited to a small number of transactions in the first part of 2010 with net losses of approximately $860,000 (and somewhat less in the case of Mr McKay, given he did not face charge 13). As is evident from the Court of Appeal’s judgment, the scale of the offending placed Mr Bublitz’s culpability at a lower level than in a number of other finance company collapse cases, and Mr McKay’s culpability was by definition a little lower again.

[180] Second, I take into account Mr Bublitz’s and Mr McKay’s broader conduct in 2009. Toogood J was clearly concerned about that conduct, and his observation that it was “at the margins of legality” must be seen in the context of a criminal trial and the standard of proof that applied (beyond reasonable doubt).151 Accordingly, while the Court of Appeal held that it was inappropriate for that conduct to have been taken into account at sentencing, there is no reason why it cannot inform the Court’s assessment on the present application.

[181] There is no basis for me to conclude in this judgment that any of that conduct breached the civil standard of proof; issues of that nature would involve a significant and lengthy trial in their own right. But it is relevant in my view that much of Mr Bublitz’s and Mr McKay’s conduct during that period would be unlikely to be viewed as consistent with the standards expected of those charged with the management of companies. I note, however, that in relation to Mr McKay, Toogood J’s concerns appear to have been focused on the period following Mutual’s acquisition in late 2009 (see [163] above).

[182] I am less persuaded, however, that I should take into account, at least in a determinative way, the broader losses the Registrar submits were involved in Mr Bublitz’s and Mr McKay’s offending, of around $3.9 million in relation to the Viaduct and Mutual transactions alone. I accept that it is unlikely that Toogood J’s findings as to Mr Bublitz’s and Mr McKay’s knowledge would be any different in the context of those transactions, particularly given I understand those transactions occurred over the same four-month period as those the subject of charges 10 to 12.152 The position is less clear in relation to additional Hilltop transactions, and in relation to NKE Trust Ltd, I do not consider it appropriate to expand Toogood J’s global findings on knowledge to those transactions, about which there is very limited information before me. At the most, therefore, I have taken into account that there was a broader suite of transactions involving the purchase of loans from Viaduct such that the broader losses are likely to be more than the $860,000 identified by the Court of Appeal. I balance against this, however, that neither Mr Bublitz nor Mr McKay have been found guilty of any misconduct in relation to those other transactions, on

151 Sentencing notes, above n 4, at [45].
152 Affidavit of Mr Bostock dated 10 August 2020 at [3.26] and [3.29].

either the criminal or civil standard of proof. And the presence of additional, similar transactions in relation to Viaduct which occurred over the same short period as those the subject of charges 10 to 12 does not itself suggest Mr Bublitz or Mr McKay are a materially greater risk to the public.

[183] Third, the fact that neither Mr Bublitz nor Mr McKay has ever previously offended, or been engaged in other relevant misconduct, materially informs the need to protect the public. Both men had lengthy professional careers prior to their offending with no suggestion by the Registrar of any misconduct relevant to the present application. This is a materially distinguishing factor from the circumstances in Blake. While the sums lost in that case were not considered by Venning J to be “at the extreme end”153 and he observed that Mr Blake had not been found guilty of criminal dishonesty,154 Mr Blake nevertheless had an unenviable history of misconduct which was highly relevant to the appropriate period of a prohibition order:

(a)at the time of the Registrar’s application, Mr Blake was serving a prison sentence for offences in relation to the management of companies (see
(f) below);

(b)Mr Blake had been adjudicated bankrupt on three prior occasions (in 1992, 2004 and 2017);

(c)three companies associated with Mr Blake had been put into liquidation with losses to creditors;

(d)following his 2004 bankruptcy, Mr Blake continued to act as a de facto director of several companies and in 2010, was charged with and pleaded guilty to offences in relation to that conduct;

(e)as a consequence of those convictions, Mr Blake was subject to the automatic five-year prohibition on being involved in the management of a company pursuant to s 382 of the Act; and

153 I also note that, at least in relation to the offending in this case, the losses are of a similar scale.
154 Registrar of Companies v Blake, above n 60, at [74].

(f)in 2012, the Registrar received a complaint about Mr Blake being involved in the management of a company and following an investigation, charges were laid against him in 2015 for breaching the five-year prohibition in relation to two companies (both of which had been put into liquidation, owing approximately $700,000 and $618,000 respectively to their creditors). Mr Blake faced a jury trial in relation to those charges in 2017, was convicted of a number of offences and sentenced to two years and four months’ imprisonment.

[184] In determining whether to make a prohibition order against Mr Blake and if so, for how long, Venning J noted that “personal financial failures and the failure of companies with which a respondent is associated with may be an indicator of recklessness towards obligations which would be a relevant consideration”.155 He went on to observe:156
Mr Blake seeks to explain his bankruptcies on the basis of poor legal advice (in the first case) and the failure of his legal adviser (in the second). He seeks to explain his subsequent offending on the basis he was not aware of his obligations. A person who assumes a role in the management of a company should make him or herself aware of the obligations associated with such a role. Mr Blake has a pattern of blaming other people for his failings.

The most relevant features of Mr Blake’s actions are the breaches of the provisions of the Insolvency Acts and the Act and the resultant criminal convictions: not once, not even twice, but in relation to multiple charges, on separate dates and in relation to separate matters.

[185] As a result, and importantly in my view, Venning J concluded that “there is a high likelihood that without an order preventing him from carrying on as a director or manager of a company, Mr Blake will engage in similar activities or conduct” (emphasis added).157 This is in contrast to Toogood J’s observation at sentencing that both Mr Bublitz and Mr McKay represented “low risks of re-offending”.158

[186] Accordingly, while I accept the nature of the offending in this case is more serious than in Blake, Mr Blake’s history of misconduct provided much greater indicia

155 Registrar of Companies v Blake, above n 60, at [60].
156 At [60]–[61].
157 At [68].
158 Sentencing notes, above n 4, at [13]. This was also the view of the authors of each of Mr Bublitz’s and Mr McKay’s pre-sentence reports.

of future offending or misconduct than in this case, and thus a much greater need for protection of the public. This highlights the caution noted earlier in this judgment that the seriousness of the offending ought not to overwhelm the forward-looking exercise the Court is to undertake, which should be focused on the need for public protection and not approached punitively.

[187] For completeness, I do not put any material weight on Mr Bublitz’s and Mr McKay’s remorse, or suggested lack thereof, as an indicator of the risk each poses to the public going forward. As noted, Toogood J gave a modest discount for “some remorse”.159 I am also sceptical of Mr McKay’s comments in his written submissions about his “ignorant and stupid” behaviour, which run counter to Toogood J’s observations about his capability, expertise and very close involvement in Viaduct and Mutual’s operations. Nevertheless, I accept that Mr Bublitz and Mr McKay demonstrate some remorse. Further and in any event, key factors in my assessment of the appropriate length of a prohibition order in this case are the absence of any earlier relevant misconduct by Mr Bublitz and Mr McKay, and their low risk of reoffending.

[188] Fourth, despite what I have just said about Mr Bublitz’s and Mr McKay’s risk of reoffending, general deterrence and setting of appropriate standards are still functions of a prohibition order. But given the prohibition acts on and causes hardship to the person the subject of the order, general deterrence must be balanced against that personal hardship in order to avoid the order operating punitively. For these reasons, I consider a further but not lengthy prohibition order is appropriate, particularly given the offending in this case was serious and involved dishonesty.

[189] Fifth, I also consider delay – or perhaps more accurately in the present context, the passage of time – to be a relevant factor. I accept, as did Toogood J, that complex dishonesty trials often involve delay.160 But the delay in the criminal proceedings against Mr Bublitz and Mr McKay was on any view out of the ordinary. While accepting that the passage of time will “undoubtedly be a relevant consideration – it could, for example, provide evidence as to risk of reoffending”, the Registrar says that delay should not be a relevant factor in this case, having already been taken into

159 Sentencing notes, above n 4, at [101].
160 Sentencing notes, above n 4, at [90].

account at sentencing. The Registrar refers to delays inherent in complex fraud or dishonesty trials and submits:

… that does not mean that every such case should be met with a sizeable reduction in the subsequent prohibition imposed. If that were true, almost every case involving complex company fraud would result in nothing more than the mandatory prohibition. That cannot have been what Parliament intended.

(Emphasis added.)

[190] However, the discount given for delay at sentencing reflects the purposes and principles of sentencing, a different exercise to that carried out by the Court on an application for a prohibition order. The Court’s task on an application for a prohibition order is not to determine the period of prohibition that is warranted to meet the purpose of public protection and then discount or reduce that period to account for delay. Rather, the passage of time since the misconduct in issue occurred will be relevant when assessing what period of prohibition is required in the first place. As the Registrar acknowledges, the passage of time may inform the risk of reoffending. Thus, it is not the case that almost every application under s 383 involving complex company fraud will result in nothing more than the automatic five-year prohibition. Sometimes the passage of time will reduce the risk of reoffending, other times it will not.
Mr Blake is a good example of the latter.161

[191] Mr Bublitz’s and Mr McKay’s offending occurred in 2010, more than 12 years ago. Convictions were entered in February 2019. At that time, Toogood J considered both Mr Bublitz and Mr McKay to be at low risk of reoffending. A further three years have since passed. The Registrar does not suggest anything has occurred during that period that has increased the risk of reoffending.

[192] I accept that since 2019, Mr Bublitz and Mr McKay have been subject to the five-year automatic prohibition and have therefore not been able to participate in the management of a company. But there is no suggestion that at any point during the nine-year period between 2010 and 2019 either engaged in any conduct that might be

161 Mr Blake’s offending occurred in 2012, charges were laid in 2015, verdicts were delivered in 2017 and the Registrar’s application for a prohibition order was considered in 2019. Despite that passage of time, Venning J concluded that Mr Blake remained at a high risk of engaging in future similar conduct: Registrar of Companies v Blake, above n 60, at [68].

relevant to the Registrar’s application. Upon being charged, Mr Bublitz resigned from his directorships voluntarily. If anything, that demonstrates a responsible approach. Mr McKay apparently remained a director of Saffron Capital until 2019. The Registrar submits that this is “notable”, though it is not clear why that is so; until convictions were entered, there was nothing to prohibit Mr McKay from being a director of a company and despite being a director of at least one company for that nine-year period, there is no suggestion of any misconduct. Accordingly, I consider the lengthy passage of time since Mr Bublitz’s and Mr McKay’s offending reinforces their low risk of reoffending and consequently a lesser need for the protection of the public. Absent that lengthy period of time, however, a longer prohibition order might well have been appropriate.

[193] Finally, and for completeness, I record that I have not drawn any real assistance from the English cases to which Mr Dufty referred. As Mr McMullan submitted, and Mr Dufty responsibly acknowledged, there are a number of material differences between the two statutory regimes, including in terms of the grounds for making a prohibition order and the length of the orders that may be made, such that any real comparison with those cases is difficult.

Result

[194]The Registrar’s application is granted.

[195] I make an order that each of Mr Bublitz and Mr McKay is prohibited, for a period of three years and six months from the date of this judgment, without leave of the Court, from being a director or promoter of or in any way, whether directly or indirectly, being concerned or taking part in the management of a company pursuant to s 383 of the Companies Act 1993.

Fitzgerald J

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Citations

Registrar of Companies v Bublitz [2022] NZHC 2177

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UNDER	the Companies Act 1993, s 383(3)
BETWEEN	REGISTRAR OF COMPANIES Applicant
AND	PAUL NEVILLE BUBLITZ First Respondent
AND	BRUCE ALEXANDER MCKAY Second Respondent