Shareholder class action filed over $750 million insurer's collapse

Friday, 1 November 2019

The Independent Review by John Trowbridge and Mary Scholtens QC of the Reserve Bank’s Supervision of CBL Insurance Ltd was released in July 2019.

Lawyers taking a class action law suit seeking damages from the directors of failed $750 million insurer CBL have filed their statement of claim at the High Court in Wellington.

They allege wrongdoing by CBL's directors, including that the directors made misleading statements in the initial public offering (IPO) documents issued when the insurer listed on the NZX sharemarket.

They also allege breaches of continuous disclosure obligations and insider trading.

The directors of CBL, Peter Harris and Alistair Hutchison have blamed the Reserve Bank for the insurer's failure.

**READ MORE:

CBL managing director Peter Harris has denied wrongdoing, saying the compnay could have been saved, but for actions taken by the Reserve Bank.

* Shareholder of collapsed $750 million insurer CBL to sue directors

* CBL Corporation, once worth $750 million, put into liquidation

* Insurance failure prompts questions about regulation

* Call to protect KiwiSavers exposed to $750 million CBL

* Reserve Bank orders review after CBL Insurance liquidation

* Thousands of recently built homes covered by guarantees from CBL**

In a statement issued though public relations company Senecall Akers, Harris criticised litigation funder LPF Group for courting media coverage.

As collapse approached CBL employees worked late into the night to try to save the company.

'Peter Harris said that it is a cheap shot by a NZ based litigation funder to make unsubstantiated and damaging allegations designed to legitimise an action and garner support ahead of a competing litigation funder,' the statement said,

'The fact is that these allegations are just that, - allegations. The court is the proper forum to decide whether these allegations are true or not or had anything to do with any loss, - not through the media before the court case is even heard.'

The CBL class action was being led by major shareholders Harbour and Argo Investments Limited, and was seeking compensation for 'significant financial losses' shareholders suffered when the company collapsed in 2018.

At the time its shares were suspended from trading by NZX, the insurer was valued at around $750m, making its failure one of the biggest in New Zealand corporate history.

Andrew Bascand, chair of the CBL class action claim committee, said: 'The claim alleges the directors of CBL are responsible for misleading statements in the IPO documents that, at the time the company listed on the NZX and ASX, it had adequate financial reserves to meet its insurance obligations.

'The claim also alleges that directors are responsible for the company failing to update the market in the period after the IPO with material information about CBL's financial position.'

'The insider trading allegations in the statement of claim allege that directors Peter Harris and Alistair Hutchinson, through companies controlled by them, sold shares in CBL while they were in possession of material information relating to CBL that they knew was not available to the market generally.'

'Shareholders globally lost hundreds of millions of dollars when CBL collapsed,' Bascand said. 'The directors must be held to account for their actions and shareholders compensated for their losses.'

'We believe legal action is the only way investors in CBL can get any money back,' he said.

CBL specialised in providing insurance to owners of new homes that would fix faults in new homes, and while it issued some policies in New Zealand, most of its insurance business was done in Europe.

Its collapse led to questions being asked about the Reserve Bank's capability as a regulator of insurance companies, prompting the regulator to pay for an independent review into its handling of CBL.

The report found the Reserve Bank, which regulates the insurance and banking industry, first had suspicions about CBL's financial strength in 2013 but lacked the resources, and experience to investigate and did not actively pursue its concerns until 2017.

Harris also rejected the claim that there were misleading statements in the IPO documents of CBL.

'The IPO was an incredibly robust process, with many professional firms and several government regulators involved,' the statement issued by Senescal Akers read.

'If the proposed class action gets to court, it will be a good opportunity to examine all parties involved, on oath, rather than the recent narrowly defined RBNZ whitewash review which interviewed no-one other than RBNZ employees to compile its report, and certainly not me.'