Minority Shareholders File Court Action Against Financial Markets Authority
In a significant legal development, Lindeman Investment Limited, along with other minority shareholders of Du Val Property Group, has initiated court proceedings against the Financial Markets Authority (FMA), alleging negligence and breach of statutory duty. The High Court filing follows a period of escalating tensions between the shareholders and the regulator, centered around the FMA’s handling of the Du Val group of companies.
Allegations Against the FMA
The statement of claim, filed on 8 October 2024, accuses the FMA of failing to act with reasonable care when dealing with the Du Val entities, ultimately leading to the significant devaluation of shareholders’ investments. The plaintiff, Lindeman Investment Limited, which holds over 5.6 million shares in Du Val Property Group, claims that the FMA failed to properly investigate and assess the company’s financial operations and structure. They are joined by several other shareholders, including Porteous 2022 Investments Limited and Trustees of the Shallcrass Family Trust, representing a total combined shareholding valued in millions.
According to the claim, the FMA had been aware of concerns surrounding Du Val as early as 2022, yet failed to initiate a thorough investigation until 2024. This delay, the plaintiffs argue, allowed significant issues to escalate, ultimately culminating in the appointment of a statutory manager. The minority shareholders assert that the FMA’s actions, including its reliance on questionable evidence and failure to adequately investigate financial information, directly led to the collapse of the company’s share value.
Key Points of Negligence
The claim outlines several specific instances where the FMA is alleged to have failed in its duty of care:
• Failure to Investigate: The FMA did not initiate timely investigations into potential breaches of the Financial Markets Conduct Act (FMCA), despite being aware of concerns related to Du Val’s use of wholesale investor exemptions.
• Inadequate Evidence: The plaintiffs claim the FMA relied on hearsay and media reports rather than conducting an independent review of the company’s financial information, such as solicitors’ trust accounts and Xero records.
• Misleading Statements: A letter sent by the FMA on 2 July 2024, approving a debt-to-equity swap proposal by Du Val, is alleged to have misrepresented the financial health of the company, further exacerbating losses for shareholders.
• Appointment of Statutory Manager: The FMA’s decision to seek the appointment of a statutory manager for Du Val, while based on what the plaintiffs claim was insufficient evidence, resulted in significant financial harm to shareholders as it forced the liquidation of assets at a distressed value.
Impact on Shareholders
The plaintiffs argue that the FMA’s failures have directly contributed to a substantial decrease in the value of Du Val shares. They are seeking compensation equivalent to the original cost of their shares, as well as interest and legal costs.
This legal battle highlights the frustrations of minority shareholders who feel that the FMA, a Crown entity tasked with protecting investors, did not act in their best interests. The court action is the culmination of months of dissatisfaction with the regulator’s handling of the Du Val situation, particularly in relation to the decision to place the company under statutory management.
What’s Next?
As the legal proceedings advance, all eyes will be on how the court evaluates the FMA’s actions and whether it finds that the regulator failed in its duty of care. For the minority shareholders, this case represents a chance to recover some of their lost investment and bring accountability to a regulatory process they believe was flawed.
The outcome of this case could have broader implications for how regulatory authorities handle distressed companies and how they interact with minority shareholders in New Zealand’s financial markets.
The minority shareholders remain steadfast in their pursuit of justice, hoping that this action will not only lead to financial recompense but also ensure greater scrutiny of regulatory bodies moving forward.
This case will be closely monitored by both investors and legal experts alike, as it raises important questions about the responsibilities of regulators and the protection of shareholder interests in New Zealand.
This article aims to keep minority shareholders and other interested parties informed of the latest developments in this ongoing legal case. Further updates will be provided as the case progresses through the courts.
