An interesting twist in the Hanover Finance case

The demarcation between the responsibilities of directors and promoters and those of shareholders was made plain in the Hanover Finance case today. The Financial Markets Authority filed a civil suit against six named parties (five directors and one shareholder), following the collapse of the business several years ago, and a decision by the Serious Fraud Office to abandon criminal charges. The FMA has been pursuing the parties for a couple of years. Now, today, an $18M out of court settlement has been announced. However, there is a catch.

Five of the six parties (the directors, excluding the named shareholder) were named. The sixth party, well-known businessman Eric Watson, refused to admit he was a promoter of the company (as claimed by the FMA). Consequently, he has avoided being named as a party to the settlement. Thus, the decision demonstrates the distinction between the responsibilities of directors (to make decisions and bear consequences) and those of shareholders (liability is limited to loss of equity).

One final point. The response of the directors was interesting, to say the least. The directors continue to deny any liability for wrong-doing—even though they agreed to the settlement. Huh? A company has failed. The directors knowingly made major decisions including the issuance of prospectus documentation and they promoted the prospectus. Agreement to settle (funded by insurers, no doubt) implies culpability at some level you would think. Yet liability is denied. Doesn't that sound a bit odd?