The High Court has found former CBL Group chief financial officer Carden Mulholland guilty of breaching continuous disclosure provisions under the Financial Markets Conduct Act 2013 (FMCA).
The ruling follows a trial in the Auckland High Court that ran from late June to early August 2024.
This landmark case marks the first time New Zealand courts have considered a CFO's liability as an accessory to a company's contravention under the FMCA, following the public listing of CBL Corporation in October 2015 and its subsequent collapse in February 2018.
The Financial Markets Authority (FMA) proceeded with the case against Mulholland after reaching in-court settlements with CBLC, its managing director Peter Harris, and former independent non-executive directors in 2023 and 2024. The settlements resulted in admissions of multiple contraventions and pecuniary penalty orders.
"The judgment represents a significant step in the case brought by the FMA against CBLC, its directors and its CFO in the wake of CBLC's collapse,” FMA head of enforcement Margot Gatland said. “It sets an important precedent for holding a CFO accountable for an entity's continuous disclosure breaches and provides judicial guidance for senior executives of listed entities.”
The court found Mulholland personally liable as an accessory to three of CBLC's continuous disclosure contraventions.
These related to failing to disclose approximately $35 million in aged receivables (insurance premiums owed to CBLI but not paid) known by August 2017, but not disclosed until February 2018; the need to strengthen reserves by about $100 million, known by Jan. 25, 2018, but not disclosed until Feb. 5, 2018; and a regulatory direction from the Central Bank of Ireland requiring CBLIE to hold additional cash reserves of €31.5 million, known by Jan. 30, 2018, but not disclosed until Feb. 7, 2018.
The ruling provides guidance to listed issuers and their officers regarding continuous disclosure obligations. It clarifies that accessory liability isn't limited to board members. Senior officers aware of material information must ensure boards consider disclosure requirements, especially when they have specific responsibilities under company policies.
The court dismissed two additional claims against Mulholland: one related to a conditional transaction that didn't materially impact solvency, and another concerning a market announcement about a "one-off" reserve increase under the fair dealing provisions of the FMCA.
The matter now moves to the penalty phase, with the court expected to schedule a hearing in the coming months to determine appropriate sanctions for Mulholland.
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