High Court rejects injunction to stop Hanover vote; 70% favour plan (updated)

High court Justice Paul Heath has rejected an application to stop the vote for Hanover Finance's debt restructure proposal on Tuesday. Hanover also told the court 70% of the votes cast before today's meeting were in favour of its proposal. (Updated to include details from Alex Tarrant reporting from last night's court hearing, including the 70% in favour detail). Justice Heath said that the application was not a case for the court and that by ruling in favour of the application he would be taking away the ability of investors to decide whether delaying the vote would benefit them. Ruling late on Monday night, Justice Heath said he did not accept the arguments put forward by lawyer Paul Dale on behalf of Hanover Finance investor Anne Chambers Paris that the proposal was misleading and there had not been enough time to consider the plan. However, there is still an opportunity for investors to delay the vote between moratorium and receivership for the Hanover Group. Justice Heath said that if investors wished to delay the vote, then they would have the option to raise a motion at the December 9 meeting before the vote took place. The motion would then be voted on by those present on December 9 and those holding proxy votes. It would fall on the chair to adjourn the meeting if 51% voted in favour of delay. "This is not the type of case in which the court should intervene," Justice Heath said, adding: "The quintessential judgement is for individual investors to make."

Dale argued on behalf of Paris that investors had not been given enough time to consider the restructuring proposal put forward by Hanover. He also argued that Hanover had breached the Fair Trade Act by failing to produce adequate information to investors on the value of property assets owned by the Axis group that are to be part of the NZ$96 million injection from Hanover shareholders Mark Eric Watson and Mark Hotchin. Dale and associate Daniel Grove argued the case that under the trust deed of United Finance, the December 9 meeting and vote regarding Hanover's future would not be lawful, as the required amount of days between when investors received information about the restructuring process, and the December 9 meeting would not have passed. Justice Heath acknowledged that this would in fact be the case, but given that Dale and Grove represented an investor of Hanover Finance Limited, the critical trust deed as far as notice was concerned was the trust deed of Hanover Finance Limited only. Grove agreed with Justice Heath that under this deed, the minimum amount of days required would have passed. Justice Heath consequently ruled that the application for the injunction with regard to days of notice be dismissed. After dismissing the application with regard to days of notice, Justice Heath said that his decision then came down to whether Hanover had breached the Fair Trade Act in not providing adequate information to investors on the value of the Axis properties. Dale argued that there had been no independent valuation of the Axis properties, including Jack's Point in Queenstown, that were included as being worth NZ$40 million of Watson and Hotchin's NZ$96 million injection for repayments to stockholders. "It is possible that the Axis properties are worthless," Dale said, adding that if the properties did not hold value of NZ$40 million, then investors would have been misled by Hanover in that they would have been told that the shareholders were putting up more capital than would actually be realised. Bruce Stewart, representing Hanover, responded saying that the relevant date for the value of the Axis properties was when the realisation of the assets was required, and that their market value at present date was not important. Justice Heath said in his concluding comments that he agreed with Stewart that this was not a breach of the Fair Trade Act. He said he was not convinced that market values of the properties at the present time would not change the approach of any investor at the December 9 vote. Stewart also raised the point that the injunction and complaints had been made by only one of Hanover's 17,000-odd investors, and that it it been made as late as possible on Friday December 5. "There was not one request from a Hanover (investor) group for more time (to consider the proposal) until Friday afternoon," Stewart argued. Stewart told the court that by the final proxy vote count on Monday evening, 70% in terms of value were in favour of Hanover's proposal. Earlier, Justice Heath had questioned Perpetual (trustee of United Finance and Hanover Capital) and NZ Guardian (trustee of Hanover Finance) as to why they had not made any recommendation to investors on which option (receivership or moratorium) they thought would be best for investors. Both made it clear that they did not accept it appropriate for them to make recommendations on the vote, and that their job was to ensure that relevant information was placed before investors so that they could make informed decisions. "The trustee is not an investment advisor," Mike Heron, representing Perpetual, said. "The trustee did not advise on getting into it (investing in Hanover), so for such a critical decision it is a matter investors should be allowed to decide," Heron said. Graham Paul, representing NZ Guardian, said: "The trustee firmly believes it is not his position to make a recommendation. His role is to make sure the relevant information is placed before investors." Both said that if asked at the meeting tomorrow for a recommendation by investors, they would say there was merit in the restructuring plan but would not give a firm view. NZ Guardian had commissioned PriceWaterhouseCoopers (PWC) to provide a report on the Hanover situation. PWC received formal instruction to conduct the report on August 14, but PWC said that work had begun in July. The report, released on November 14, recommended investors vote for the Hanover-proposed restructuring proposal on December 9. Dale had made the point that while PWC had four months to prepare its report, investors only had three weeks to divulge the content of the proposal. Justice Heath acknowledged he had sympathy for the lack of time investors had to look over and understand the report. The Hanover vote meeting will be held at the Ellerslie race course convention centre from 10.30 am on Tuesday. We will be live blogging from the venue.