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28 August 2017

Prince and Partners

Background

Prince & Partners Trustee Co Ltd acted as trustee for finance company Viaduct Capital Limited, which collapsed in 2009 and subsequently entered receivership in 2010. The Financial Markets Authority (FMA) identified serious concerns regarding Prince & Partners’ performance of its trustee obligations, concluding that it failed to exercise the level of care, diligence, and skill required to protect investors’ interests. Prince & Partners admitted to a series of failings in its role as trustee.

In August 2014, the FMA filed civil proceedings against Prince & Partners under section 34 of the Financial Markets Authority Act. This marked the first time the FMA exercised this statutory power, which enables it to “stand in the shoes” of another party and bring legal action on their behalf. In this case, the FMA exercised the rights of Viaduct investors and the Treasury, which had assumed investors’ rights after payments were made under the Retail Deposit Crown Guarantee.

The FMA alleged that Prince & Partners breached its obligations to Viaduct investors and to the Crown by failing to adequately safeguard investor interests. The claim asserted that these failures resulted in financial losses to both individual investors and the Treasury under the Crown Guarantee arrangements. This proceeding was also significant as it represented the first civil claim brought by the FMA against a trustee.

In August 2017, the parties reached a settlement before the matter proceeded to a full hearing. The High Court approved the settlement, and the scheduled five‑week hearing was vacated. The civil proceedings were settled for $4.5 million, resolving the FMA’s claims against Prince & Partners Trustee Co Ltd.

The case underscored the critical role trustees play in New Zealand’s financial markets and reinforced regulatory expectations that trustees must actively and competently protect investor interests. The FMA emphasised that maintaining public confidence in the trustee regime is essential to the integrity of the financial system.

Timeline

August 2017

In taking these proceedings, the FMA brought a case under Section 34 of the FMA Act for the first time. This is a significant power; in that it allows the FMA to ‘stand in the shoes’ of another person’s right to take action against a third party.

Hearing on 21st and judgment on 25th August approving the terms of settlement between the Financial Markets Authority and Prince & Partners Trustee Co Ltd. Civil proceedings brought by the FMA under Section 34 of the FMA Act were settled for $4.5 million.

18 August 2017

The parties reached a settlement and subsequently notified the Court. The scheduled five-week hearing was vacated.

20 August 2014

filed civil proceedings against Prince and Partners Trustee Company Limited (Prince), using the powers of section 34 of the Financial Markets Authority Act. Prince was the trustee for finance company Viaduct Capital Limited (Viaduct).

Viaduct collapsed in 2009. FMA alleges that Prince breached the obligations it owed to Viaduct investors and to the Treasury (the Crown) under the Retail Deposit Crown Guarantee.

Section 34 of the Financial Markets Authority Act enables the FMA to stand in the shoes of another and exercise that person’s right to take action against an individual or company who is or has been in the financial markets industry.

Exercising the right of action of Viaduct investors and the Treasury (who holds the rights of investors paid out under the Crown Guarantee), FMA alleges that Prince failed to fulfil its obligations to protect the interests of investors in Viaduct. The claim further alleges that this conduct resulted in loss to individual investors and to the Treasury under the Crown Guarantee, to which Viaduct was a party.

The FMA has serious concerns about the conduct of Prince as trustee in the case of Viaduct. The FMA has determined that it is appropriate for the Court to consider the conduct in this case, and where appropriate to award compensation to investors who suffered loss as a result of Prince’s failure to fulfil its obligations as Trustee. This is the first claim filed by FMA against a trustee.

“Trustees play a critical role in protecting the rights of investors and it is vital the public have confidence that a trustee’s obligations will be discharged,” said Belinda Moffat, FMA Director of Enforcement.

FMA has brought separate criminal charges against individuals associated with Viaduct which are currently still before the Court.

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