Hotchin asked for loan details to be removed

  • Breaking
  • 04/05/2011

Former Nathans Finance director John Hotchin says he requested details of a loan from a related company be removed from the risk section of the company's December 2006 prospectus prior to publication "because it didn't look all that good".

Hotchin told a High Court trial of three of his former colleagues that he thought the information was already published in another section of the prospectus and wasn't needed in the risk section.

Nathans Finance collapsed eight months later, owing about $174 million to about 7000 investors.

Hotchin was today giving evidence against fellow former directors Kenneth Roger Moses, Donald Menzies Young and Mervyn Ian Doolan, who are all on trial on Securities Act charges.

The accused trio all deny charges of distributing an advertisement with an untrue statement and of signing a prospectus including an untrue statement.

Hotchin earlier this year admitted three charges laid under the Securities Act, similar charges laid following the failure of Nathans Finance. He was sentenced to 11 months home detention, ordered to do 200 hours community work and ordered to pay $200,000 to the Nathans Finance receivers.

Hotchin this morning told of how he set up VTL, a company which produced high-tech food vending machines, with Doolan in the late 1990s, and the formation of Nathans Finance as a financing vehicle for VTL in 2001.

Hotchin, who was mainly involved in the marketing side of the business, told Justice Paul Heath that he did not realize the statements in question at this trial were not correct until he saw a variety of documents issued to him by prosecutors, after which he admitted the charges.

He said he expressed concern when he saw a draft version of the 2006 prospectus which said VTL owed $79.6 million to Nathans Finance in June 2006.

"I felt that at the time, there was no need to continue on with it because it didn't look all that good. As a marketer I wanted to make it look better without breaking any law," he said.

"That number was mentioned in other sections of the prospectus. Other sections state that number, and I felt mentioning it two or three times was a little bit over the top."

When asked by Justice Heath if he was implying that leaving the risk section as it was would impact negatively on a reader's decision whether to invest in Nathans, he said "from my perspective, I felt it didn't need to be highlighted again".

However, he could not find other mentions of this debt in the prospectus when asked to do so.

The Crown said Hotchin and the three accused were directors of both Nathans Finance and VTL, and that the charges arose because of conflicts between the interests of the accused and those of Nathans Finance investors.

It alleges that when VTL was failing, there was no cash flow to enable Nathans to pay its debenture investors or to repay principal, except from the cash it obtained from new investors providing fresh funds for Nathans.

Hotchin today said he was concerned that interest on the Nathans loan to VTL wasn't being met prior to his departure for Britain.

He said he wasn't concerned at first provided the underlying asset base was there, but over time he thought the structure of having capitalized interest wasn't acceptable as it "was just continuing to blow the debt".

"The view was that if the company wasn't able to meet the ongoing interest component, then we had a big problem."

Hotchin said that KPMG in late 2005 was asked to undertake a feasibility study of whether Nathans Finance could be sold.

He said KPMG valued Nathans Finance at $28 million, "but they said intercompany debt was so high, debt to VTL was so high, that unless it could resolve that, the company probably couldn't be sold".

The Crown has alleged that documents and marketing letters from December 2006 which painted a glowing picture of Nathans Finance's financial worthiness were completely divorced from the truth.

These included a marketing letter issued just two weeks before Nathans Finance was placed into receivership in August 2007.

The trial before Justice Heath alone is into its seventh week.

NZPA

source: newshub archive