19 Sep 2012

Inexperienced director case prompts FMA warning

10:43 am on 19 September 2012

Financial Markets Authority officials have issued a warning to all company directors after an inexperienced former National Finance director was sentenced for her part in the company's collapse.

Carol Braithwaite was sentenced on Tuesday to 10 months' home detention and 300 hours of community work for making untrue statements in a finance company prospectus.

The High Court in Auckland heard that the mother-of-five underestimated the risk and bad debt of National Finance.

She also failed to disclose that she was married to fellow director Trevor Ludlow when interest-free loans were taken to buy luxury apartments in Fiji.

National Finance collapsed in 2006, owing more than 2000 people over $20 million.

Braithwaite was convicted by a jury in July this year after pleading not guilty.

Her lawyer, Arlan Arman, says the director had no financial experience.

"If you look at all the cases that have been dealt with so far, they deal with finance company directors who have a background in finance. They're very experienced, seasoned businessmen - they have a pretty high level of education when it comes to finance.

"When it came to Carol, she's somebody that simply didn't know anything. And the question was really whether or not you could hold her accountable for failing to meet a standard when there's really no way she could know about that standard."

The Financial Markets Authority says the sentence highlights the fact that directors are accountable for what is held in prospectuses and investment statements and cannot rely on what others tell them.

It says all directors are responsible for having proper oversight and understanding of the business and its financial performance.

Another National Finance director, Trevor Allan Ludlow, was sentenced to nine months' jail after pleading guilty to making untrue statements in the company's prospectus.

Director Anthony Banbrook is yet to be sentenced after pleading guilty to making untrue statements in a prospectus.