Legal issues to resolve in Hubbard Management Fund

Legal issues to resolve in Hubbard Management Fund and Aorangi Securities

Hubbard Management Fund

The statutory managers of Hubbard Management Funds have filed papers in the Court for a determination of the equitable method of distributing the Fund back to investors.

“The complexity of the issues surrounding the management of the Fund that have been uncovered mean that the Court needs to make a determination on what is a fair method of distribution”, said the statutory managers, Graeme McGlinn, Richard Simpson, and Trevor Thornton in releasing their 9th Report last week.

“The value of the investments in the Fund as reported on investor’s statements prepared by Mr Hubbard as at 31 March 2010 is significantly greater than the value of the underlying investments at that time. With global volatility, the value of the investments has declined further.

In later years, Mr Hubbard constructed the Fund on a high risk/high return philosophy with a bias towards smaller listed companies in the resource sector. It appears to have been assembled on an ad hoc basis. The Fund did not have a documented guidance structure or investment allocation methodology. The value of the fund is now about $44 million.

The portfolio of investments set out in investor statements from Mr Hubbard may not in fact have been held by the Fund on their behalf at that time. Transactions that were reported as having occurred in investor statements may not have occurred at all.

The accounting system operated by Mr Hubbard resulted in valuation and accounting errors in the investor statements. As a result, there was no easy way to align the investments owned by the Fund with the investments allocated to investors.

We are now asking the Court to approve our proposed method of distributing the Fund to each investor in the context of all of the issues that have confronted the statutory managers. The situation we have uncovered does not appear to have been fully covered in previous case law.

We expect the Court hearing to commence mid-2012, but there are issues to be resolved such as how investors may be represented. There are over 2,000 pages of papers that have been filed. The complexity of this matter could materially affect the time needed to complete proceedings and for the Court to reach a determination. As soon as we have a hearing date from the Court, we will report to investors setting out a possible timetable for payments to be made from HMF,” concluded the managers.

Aorangi Securities

The statutory managers have also released their 9th Report on Aorangi Securities. In their report they confirm that disputes and unresolved issues over ownership of Aorangi Securities assets are delaying the realisation of investors’ money.

“It is with regret that we will be unable to make further capital distributions to investors at this time and this position will be reassessed in mid-2012,” said the statutory managers.

“We acknowledge the hardship that some are suffering, but we are moving as quickly as possible to both protect and return investments to investors in Aorangi.

We continue to work with Mrs Hubbard and her advisers and support her desire to reach a settlement with her creditors and with Aorangi, while remaining mindful of our aim to maximise the return to Aorangi investors.

Separately we are trying to collect various third party loans, but many of these are complex and have associated legal difficulties such as receiverships, liquidation applications, disputes and shareholding issues. We believe the realisation process will be significantly advanced over the next six months and certain sales are likely to be timed to coincide with the end of the dairy season in May or June next year.

Total realisations to date are approximately $34 million, but is less than the previously estimated $40 million because of a dispute with a non-Hubbard shareholder in a large farm. About $20 million is being held pending determination of ownership of the proceeds.

As at September, investors have received 12c in the dollar or close to $11.5m. Some investors are also receiving a wellbeing allowance. This is determined by a third party assessor.

The full reports for both the Hubbard Management Fund and Aorangi Securities are available on the Grant Thornton website at www.grantthornton.co.nz as well as answers to frequently asked questions. Previous reports are also available on the site.

The statutory managers expect to provide further reports at the end of March 2012.
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