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Copy of Enforceable Undertaking

View Enforceable Undertaking in PDF format.

This undertaking is offered to the Securities Commission ("Commission") for acceptance under section 69J of the Securities Act 1978 ("the Act") by:

Contributory Mortgage Investments Limited ("CMI"), contributory mortgage broker, Eden Crescent, Auckland

and by

Contributory Mortgage Nominees Limited ("CMN"), nominee company for CMI, Eden Crescent, Auckland

and by

John Leonard Martin ("John Martin"), director of CMI and CMN

and by

Ronald Spencer Jamieson ("Ron Jamieson"), alternate director for John Martin of CMI and CMN

(together "the parties")

Background

CMI is registered and carries on business as a contributory mortgage broker. CMN is its nominee company. John Martin is a director of both companies and Ron Jamieson is his alternate director.
CMI has not offered new mortgages to the public since September 2005. Eight mortgages remain under CMI's management and are all in default. CMI is endeavouring to sell the properties held as security for these mortgages and are taking some other steps to recover contributors' funds. Two mortgages have been settled by CMI at a loss to contributors. A further two mortgages were removed from CMI's management in December 2006 under section 44B of the Act. At the time of their removal principal and interest was outstanding to contributors.
The Commission accepted enforceable undertakings from CMI, CMN, John Martin and Peter van Nieuwkoop in February 2006. It also removed the Otahuna 1st and 2nd mortgages from CMI's management in December 2006, as noted above. The Commission has continued to investigate the situation and has further concerns about a number of aspects of the parties' compliance with the law and conduct in the offer and management of contributory mortgages including:
1. the legality of deductions that have been made, and are proposed to be made, from proceeds of security held for the mortgages under CMI's management to pay to, or for the benefit of, CMI or associated persons in priority to distribution of funds owing to contributors;
2. the adequacy of CMI's disclosure in relation to the risks of investment in some of the mortgages it offered;
3. the time taken by CMI to notify contributors of borrowers' defaults in some cases;
4. conflicts of interest between CMI's own interests and the interests of contributors where funds are claimed by CMI or where CMI may have potential liability to contributors for loss arising in respect of any mortgages.
The Commission has decided to obtain an opinion of the Court regarding certain legal issues, in particular the legality of deductions claimed by the parties in priority to contributors from proceeds of security held for the mortgages. The Commission considers the interests of contributors will be best served by seeking such a determination before considering whether or not to further exercise its powers under section 44B of the Act to replace CMI as broker of the mortgages.
The parties have given certain oral undertakings and by this document agree to extend those to the undertakings (set out below) to preserve the position of current contributors and not to offer new securities in the meantime.
The Commission has accepted these undertakings to preserve the position of contributors pending determination of legal issues and any further consideration by the Commission of its powers under section 44B.

Undertakings

Restraint from offering securities

CMI and CMN will not offer or promote interests in contributory mortgages, or interests in any other securities, to the public until after 31 March 2008.
Mr Martin will not offer or promote interests in contributory mortgages, or interests in any other securities, to the public until after 31 March 2008 either:
1. as director of CMI or director of CMN;
2. as an issuer, or as a director of an issuer, or a promoter, or director of a promoter.
Mr Jamieson will not offer or promote interests in contributory mortgages, or interests in any other securities, to the public as a director of CMI or director of CMN until after 31 March 2008, it being understood that upon cessation of Mr Jamieson's directorial roles in both CMI and CMN any post-resignation obligations under this undertaking shall cease.

Maintenance of funds received in respect of mortgages under CMI's management

All monies received by any of the parties in relation to the mortgages currently under CMI's management will be paid directly into CMN's trust account.
No distribution of any money will be made from funds held in this trust account other than:
1. to a registered contributor to the mortgage in respect of which the funds have been received in proportion to that contributor's contribution to that mortgage;
2. for disbursements payable to persons not associated with CMI, CMN or its directors incurred in connection with the exercise on behalf of contributors of the powers of the mortgagee under the mortgage, including reasonable legal fees;
3. in accordance with a decision of the Court.
CMI will procure that at the end of each calendar month the accounting records pertaining to mortgages remaining under CMI's management will be audited by an independent chartered accountant and that the auditor will report to the Commission on the following matters within 25 working days of the end of the calendar month to which the report relates:
1. the source and amount of funds received in respect of each mortgage;
2. any distribution of funds made in respect of each mortgage, including:
  1. the total amount of funds distributed to registered contributors for each mortgage;
  2. details of the recipient, nature and amounts of any disbursements paid in connection with any mortgage;
3. the amount of funds retained in the trust account for each mortgage and details of the nature and amounts of any claim to which those funds are subject;
4. whether all funds received in respect of each mortgage are properly accounted for and whether the total of each ledger kept for each mortgage balances with the total of funds maintained in the trust account;
5. whether any funds have been paid out of the trust account otherwise than in accordance with these Enforceable Undertakings;
6. whether accounting records for each mortgage have been maintained in accordance with good accounting practice.
The first report to be received is to be in respect of the month of May 2007

Provision of information to Commission

The parties will promptly provide all information and documents sought by the Commission, and otherwise reasonably and promptly co-operate with the Commission, to assist the Commission in its legal proceedings referred to in paragraph 4 above.
In particular the parties will provide within 20 working days of the date of this Enforceable Undertaking all information and documents in respect of each mortgage offered to the public by CMI upon which the parties intend to rely in claiming a right to the payment of funds from proceeds of security held for any mortgages in priority to contributors to the mortgages.

Acknowledgements

The parties acknowledge that the Commission:
1. may comment publicly on the undertaking and about the concerns of the Commission which led to the undertaking being executed;
2. may from time to time publicly refer to the undertaking; and
3. may make this undertaking available for public inspection.
The parties acknowledge that this undertaking does not derogate from the rights and remedies available to the Commission or to any other person or entity arising from the conduct described in the undertaking.
The parties acknowledge that the Commission's acceptance of an enforceable undertaking under section 69J of the Act does not affect the Commission's power to investigate the conduct of any person, to take any action or exercise any power under the Act, or any other legislation, or to refer any matter for criminal prosecution or seek any civil penalties.

Signed for and on behalf of CMI
by its duly authorised officer Mr Ron Jamieson, Alternate Director for Mr John Martin:

_________________

Date: _________________

Signed for and on behalf of CMN
by its duly authorised officer Mr Ron Jamieson, Alternate Director for Mr John Martin:

_________________

Date: _________________

Signed on behalf of Mr John Martin
by his attorney Douglas Kim Fisher:

_________________

Date: _________________

Signed by Mr Ron Jamieson

Accepted by the Securities Commission
pursuant to section 69J of the Securities Act 1978
by its authorised delegate:

_________________

Name: _________________

Date: _________________

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