CBL – continuous disclosure and fair dealing breaches

As a bookend to the previous article about accessory liability, in August 2024, the High Court ordered Peter Harris, the former MD of CBL, to pay a penalty of $1.4 million for continuous disclosure and misleading conduct breaches.

In a case brought by the FMA after the collapse of CBL for failing to disclose material information to the market via NZX during 2017 and 2018, the FMA alleged that:

• CBL failed to comply with its continuous disclosure obligations in relation to:

• the need for its primary operating subsidiary, CBL Insurance Limited (in liq), to strengthen its reserves;
  • the existence and impact of a large amount of aged receivables (unpaid insurance premiums) in respect of CBL’s French insurance business; and
  • directions issued to and conditions imposed on CBL’s Irish subsidiary by the Central Bank of Ireland; and

• CBL engaged in misleading and deceptive conduct in respect of its market announcement on 24 August 2017.

In March 2024, the FMA and Mr Harris entered into an in-court settlement to resolve the proceedings.  This included Mr Harris making admissions to seven contraventions of the FMC Act, and jointly agreeing to support a penalty – that the Court subsequently approved.

At the subsequent penalty hearing, the High Court declared that Mr Harris breached the fair dealing and continuous disclosure provisions under sections 22 and 270 of the FMC Act and imposed the pecuniary penalty.

In doing so, Justice Gault said:

“[t]he present case is the epitome of what the fair dealing provisions and continuous disclosure regime are designed to prevent.  Such breaches undermine market integrity and transparency.  They are unfair to investors and jeopardise confidence in the integrity and transparency of New Zealand’s financial markets. Any penalty must bear in mind such harmful effects.  The contraventions denied investors access to accurate and timely information and are inconsistent with the promotion of transparent financial markets.  Investors were provided with misleading information in August 2017 and no further information was made available to them about the multiple material issues impacting CBLC’s business until 5 February 2018 after the trading halt.  The conduct was completely inconsistent with promoting the confident and informed participation of business investors and consumers in New Zealand’s financial markets.”

Justice Gault added:

“More generally as Managing Director Mr Harris was integral to the overall direction and management of the CBL Group and had a detailed knowledge and understanding of the matters that are the subject of the contraventions ”   and that he   “was not only Managing Director but also a member of the Disclosure Committee tasked with determining information required to be disclosed to the market.”

The $1.4 million penalty reflects the seriousness of the breaches that occurred and Mr Harris’s roles and responsibilities as CEO and Managing Director entrusted with the governance of a listed company.

Compliance with the continuous disclosure obligations of a listed company is a fundamental obligation which underpins the functioning of New Zealand’s capital markets – and ensuring that they are efficient, transparent and fair, and that there is equality of information in the market.

As part of the settlement with FMA, Mr Harris also gave an ‘enforceable undertaking’ that he will not hold any management or directorship positions with any listed issuer or licenced insurer in New Zealand and will not participate in any regulated offer in New Zealand.  The duration of this undertaking is until the final determination of separate proceedings brought by the FMA alleging failures in disclosure during CBL’s 29015 IPO.

In December 2023, the High Court made pecuniary penalty orders against CBL and its four independent directors after they admitted continuous disclosure and misleading conduct breaches.

There has also been a settlement in separate civil proceedings brought by shareholders and liquidators for a sum of $72.5 million.

The CBL decision is a compelling lesson in the need for the directors of the listed companies to be aware of their continuous disclosure obligations, including the key requirements and deadlines for disclosing material information.

For more information, please do not hesitate to contact me.