The Serious Fraud Office has decided not to prosecute Hanover Finance after a three-year investigation as it couldn't be sure it would get a conviction.
The company was owned by Mark Hotchin and Eric Watson. It suspended payments to bondholders in July 2008 and sold its loan book for $400 million to Allied Farmers in late 2009.
About 13,500 investors were owed $554 million when the firm suspended payments and despite its assets being acquired by Allied Farmers, the value of their holdings has plunged to a fraction of their original worth.
On Tuesday, the SFO said it found there are serious questions about the firm's behaviour and whether it breached the rules.
That included the actual financial health of Hanover from late 2007 and what it told investors; its solvency when dividends were paid to its owners six months before suspending payments to investors; and the accuracy of the value of its assets when it sought approval from investors to restructure its debt payments in late 2008.
However, SFO acting chief executive Simon McArley said the agency could not be confident it could prove wrongdoing that would satisfy a court, or that those who controlled Hanover Finance had deliberately misled investors.
Mr McArley said the SFO may reconsider its decision if compelling evidence becomes available. Otherwise, he said that brings an end to its investigations into finance company collapses, which resulted in criminal prosecutions against nine of the 15 firms it looked at.
Hanover is still facing civil charges from the Financial Markets Authority for misleading investors.
In a statement on Tuesday, Eric Watson said the SFO's decision finally sets the record straight.
Mr Watson said he has been confident from the outset that Hanover Finance was responsibly governed and managed. He said he continues to have absolute confidence in the calibre of Hanover's directors during what proved to be unprecedented market events.
Mark Hotchin said that the SFO's decision is obviously a relief and it has been a long and thorough process.
Former investor Alf Powell lost $400,000 - most of his life savings - and said he is incredibly angry and appalled that Hanover Finance won't face criminal charges. Mr Powell said the losses he and his wife face represent a life of hard work down the drain.
Another investor, John, lost about $16,000 and said he is disappointed that no one will be held accountable.
Right call, says lawyer
A commercial lawyer says the Serious Fraud Office made the right call by deciding not to prosecute Hanover Finance.
Stephen Franks, of Wellington law firm Franks and Ogilvie, said he gained an insight into how the company was run through a client's involvement several years ago.
Mr Franks said he had a look at a sample of company documents which demonstrated to him that Hanover was well-run and not what he called a "cowboy outfit".
However, Mr Franks said he commended the SFO for the effort it put into the investigation.