Correspondence
Back to Correspondence[copy of letter received from Chapman Tripp]
Bruce Sheppard
Chairman, NZX Shareholders' Association Inc., and in your personal capacity
c/- P O Box 6310
Wellesley Street
AUCKLAND 1141
Chairman, NZX Shareholders' Association Inc., and in your personal capacity
c/- P O Box 6310
Wellesley Street
AUCKLAND 1141
by email bruce@gilshep.co.nz
Dear Bruce
Hanover – Allied Farmers Proposal – DISSEMINATION OF false and misleading information by you
1 We act for Hanover Finance Limited and its related companies United Finance Limited and Hanover Capital Limited and their board of directors (together Hanover). For the avoidance of doubt, this letter is written on behalf of Hanover, rather than its shareholders.
2 The purpose of this letter is to:
2.1 put you on notice that Hanover considers you have recently, knowingly, made statements and disseminated information, including those referred to below, that are materially false and misleading, contrary to sections 11 and 13 of the Securities Markets Act 1988; and
2.2 require you to cease and desist making such false or misleading statements, or disseminating such false or misleading information; and
2.3 confirm that the required shareholder support provided for in the Debt Restructure approved by investors has been provided to Hanover.
3 Hanover’s focus in instructing us to write to you is to ensure you cease making or disseminating false statements and information. This is a reasonable objective. Hanover does not seek to suppress the opinions you may sincerely and validly hold in relation to the Allied Farmers proposal.
4 The issues afoot are not academic. Hanover is aware of indications that a number of investors intend to act or have acted in reliance and on the basis of statements made by you – statements you knew to be incorrect, and/or have failed to correct.
5 Hanover reserves its rights to initiate legal proceedings against you, and/or to refer your conduct to relevant regulatory authorities.
6 Hanover has also asked us to record that it considers it most inappropriate that you feel empowered to insult Hanover investors, simply because (it would seem) they do not agree with you.
False and misleading statements
7 A number of the recent false statements have been made, or disseminated, by you. These statements include:
In relation to the Debt Restructure
7.1 That the $10m cash was never contributed by the shareholders, as required by the Debt Restructure Support Package. For example, on TVNZ’s Close Up on 11 November 2009 you said:
“These two guys and their big houses have not paid a single dime into the coffers. And the sad reality is the bond holders who voted for the nutty moratorium plan actually thought that the first $10 million was going to be paid into the company on the day they voted. It hasn't been and it won't be.”
This is simply not correct - see paragraph 14 below. The $10m cash has been paid. Further, this sum will transfer to Allied Farmers if the Allied Farmers Proposal becomes effective.
7.2 That the other support assets (transfer of first ranking $26m Matarangi mortgage and shares in Axis property companies) have not been contributed to Hanover as required by the Debt Restructure. Again, this is simply not correct. And all of these assets will be transferred to Allied Farmers if the Allied Farmers Proposal becomes effective.
In relation to the Allied Farmers Proposal
7.3 “That the related party loans will be left in that balance sheet for them to own outright, thus never having to repay them. Any cash still in the Hanover balance sheet will be available for the shareholders to use” – this is incorrect; all cash (after the agreed transaction cost contribution, and contribution to residual Hanover obligations advised by Allied in its announcements to NZX), and all Hanover loan assets and property assets are to be acquired by Allied Farmers.
7.4 The suggestion that Hanover’s major shareholders are “relieved of the Shareholder Support package obligations” – see 7.3.
7.5 “It will effectively fill up their [Allied Farmers] balance sheet with overvalued assets that will generate some cash” – you have no foundation to make such a statement, particularly as at the time you made that comment the independent expert report was not publicly available. As advised in Allied Farmers announcements to NZX, it is acquiring all the land and property assets at arm’s length values. You are also aware that Hanover has recently published its audited financial statements which include reference to independent registered valuations at 30 June 2009.
made on TVNZ Close up and TV3 Campbell Live, on Newstalk ZB, or attributedto you in the New Zealand Herald, and the Dominion Post).
Securities Markets Act 1988
8 Section 11 of the Securities Markets Act 1988 (Act) provides:
11 False or misleading statement or information
A person must not make a statement or disseminate information if—
(a) a material aspect of the statement or information is false or the statement or information is materially misleading; and
(b) the person knows or ought reasonably to know that a material aspect of the statement or information is false or that the statement or information is materially misleading; and
(c) the statement or information is likely to—
(i) induce a person to trade in the securities of a public issuer; or
(ii) have the effect of increasing, reducing, maintaining, or stabilising the price for trading in those securities; or
(iii) induce a person to vote for, or vote against, a transaction, or to abstain from voting in respect of that transaction.
9 Allied Farmers is a public issuer, for the purposes of section 11 of the Act. Under section 11A of the Act, it is a criminal offence, if the person has actual knowledge that the statement or information is false in a material aspect or is materially misleading.
10 Section 13 of the Act provides:
13 Misleading or deceptive conduct generally (for dealings in listed and non-listed securities)
(1) A person must not engage in conduct, in relation to any dealings in securities, that is misleading or deceptive or likely to mislead or deceive.
(2) To make the position clear, this section applies more broadly than the rest of this Part and so applies to securities whether listed or non-listed and to all dealings in securities (not only trading).
11 As section 13(2) makes clear, section 13 of the Act applies to both Allied Farmers and Hanover securities affected by your misleading conduct.
12 Sections 11 and 13 of the Act also have civil liability, and section 11 has pecuniary penalty liability (which may be sought by the Securities Commission), consequences for a person making false or misleading statements.
13 Lest you have any doubt, Hanover considers you have contravened sections 11 and 13 of the Act in relation to your false statements that affect the Allied Farmers share price, and section 13 of the Act in relation to misleading statements made to Hanover investors.
Debt Restructure
14 We acted for Hanover in relation to the Debt Restructure. Chapman Tripp confirms:
14.1 We received into our trust account, before the Hanover meetings in December last year, $10m in cash from the shareholders and have been holding that in our trust account for the Hanover investors on the terms investors agreed to in the Debt Restructure. As noted above, if the Allied Farmers Proposal is implemented, that cash and all accrued interest will be paid to Allied Farmers.
14.2 We attended to settlement of the transfer for the $26m Matarangi first mortgage from the shareholders interests to Hanover, as required by the terms investors agreed to in the Debt Restructure.
14.3 We attended to settlement of the transfer of the Axis companies to Hanover, as required by the terms investors agreed to in the Debt Restructure.
14.4 None of the quarterly payments to investors under the agreed schedule of payments agreed to by investors in the Debt Restructure have actually been missed by Hanover to date.
14.5 The $10m top-up support for the period 1 January 2011 to 30 December 2013, as approved by investors under the Debt Restructure, is not yet callable. In the event the trustee was to take initiate an event of default, following an event of review (none has occurred to date) and due consultation, and appointed a receiver, the $20m top-up support ceases to be available – this was clearly spelt out in the terms of the Debt restructure approved by investors, and the independent expert reports.
Yours faithfully
Roger Wallis
PARTNER
DIRECT: +64 9 357 9077
cc David Henry, Hanover Chairman