Securities Commission says Botherway played no operational role in any Hubbard investigation

Simon Botherway, a Securities Commission member facing a complaint to the Office of the Ombudsmen from supporters of Allan Hubbard over an alleged conflict of interest in the regulator’s role in placing Hubbard into statutory management, played no operational role in any investigation of Hubbard, the Securities Commission says.

Securities Commission general counsel Liam Mason told interest.co.nz that board members of the Securities Commission, such as Botherway, don’t play an operational role in investigations.

“Their role is to oversee the performance of the Commission's functions, and to consider certain statutory decisions as required under the law,” says Mason.

Botherway, the former executive chairman of Brook Asset Management, has been under fire from both supporters of Hubbard and the opposition Labour Party. The 'Stand by Hubbard' group recently produced an email copy of a letter sent to them by Chief Ombudsman Beverley Wakem. In it Wakem says she has decided to investigate the reasonableness of the Securities Commission's policies and procedures relating to the disclosure of actual and potential conflicts of interest, and the extent to which these procedures were followed in the Hubbard case.

And Labour's finance spokesman David Cunliffe has called for Botherway to step aside while the Ombudsman's office conducts an inquiry.

Mason says that in the course of an investigation into Securities Act compliance, after a complaint from an Aorangi investor who had not received a prospectus, certain matters were referred to the Registrar of Companies by Securities Commission staff. Registrar of Companies Neville Harris then decided to appoint inspectors under the Corporations (Investigation and Management) Act 1989, Mason said, adding that at the same time the Securities Commission asked the Registrar to appoint the inspectors under the Securities Act.

A report was then prepared by the inspectors. Mason says this report was provided to the Securities Commission to consider questions of statutory management.

“The Commission considered the report on (Friday) 18 June 2010, and made a recommendation to the Government that Aorangi Securities Limited, various trusts, and Mr & Mrs Hubbard be placed in statutory management,” says Mason.

Mason says Botherway was one member of a division of the Securities Commission that formally appointed inspectors under section 67 of the Securities Act, on the recommendation of Securities Commission staff.

“Mr Botherway was also on the division that considered the report of the Registrar of Companies into the company and recommended statutory management.”

Commerce Minister Simon Power announced the appointment of Trevor Thornton and Richard Simpson of Grant Thornton as statutory managers on Sunday June 20.

At the centre of the Hubbard supporters' complaint against Botherway is his brother Barry Jonathon Botherway’s hospitality business, because it was placed in receivership by the then Hubbard controlled South Canterbury Finance in July last year.

The brewer did it, not SCF

However, the first receivers’ report, by Malcolm Grant Hollis and Maurice George Noone of PricewaterhouseCoopers, notes the initial move to appoint receivers was made by New Zealand Breweries on June 26, 2009.

The report says after a refurbishment of Jonathon Botherway’s Merivale Ale House Ltd in late 2008, he was unable to pay creditors and the company entered a creditors' compromise. But the bar traded poorly and it was evident the compromise was unlikely to succeed. Discussions were held with a number of interested parties for the sale of the Merivale Ale House business.

New Zealand Breweries, which held a second ranking general security agreement over the company’s assets, also considered it might be able to introduce a suitable purchaser.

“However, New Zealand Breweries chose to appoint receivers to protect their interests. They appointed receivers on 26 June 2009 to which South Canterbury Finance immediately responded with our appointment,” Hollis and Noone wrote. “Once Merivale Ale House Ltd had been placed in receivership, South Canterbury Finance moved to appoint receivers over the remaining (Jonathon Botherway) companies.”

South Canterbury Finance claimed NZ$7.8 million and New Zealand Breweries NZ$1.38 million.

Mason says the Securities Commission is satisfied Simon Botherway, who is also chairman of the Government's Financial Markets Establishment Board, had no conflict of interest in considering the Hubbard statutory management.

“At a subsequent meeting of the Commission, in the context of a specific discussion about South Canterbury Finance, out of an abundance of caution Mr Botherway canvassed the other members of the Commission as to whether certain business dealings of his brother might raise a possible conflict of interest in relation to a matter pertaining to South Canterbury Finance.”

“The Commission is satisfied it did not, and this has been confirmed by subsequent legal advice.”

Simon Botherway himself told the Timaru Herald in June that he had never had any personal interest either in any of his brother's companies placed into receivership or with South Canterbury Finance.

"I have no issues whatsoever with the way South Canterbury Finance acted with respect to my brother's business affairs," he told the newspaper.