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Inquiry into the 1 Parliament Street Car-Park Limited Contributory Mortgage

UPDATE

129. The Commission understands that the borrower has arranged an alternative source of finance for the Parliament Street development. Crichton Horne & Associates has informed the Commission that it will contact contributors as soon as it can with regard to repayment of their capital and any interest.

ACTIONS

130. The Companies Office, headed by the Registrar of Companies, is the primary enforcement agency in respect of the securities laws. The Commission will refer its report in this matter to the National Enforcement Unit of the Companies Office for it to consider whether to lay any criminal charges in respect of the breaches of the law identified in this report.

131. As noted earlier in this report, the Commission is of the view that MM falls within the definition in the Securities Act of "contributory mortgage broker". We have also noted that the Commission has made orders under section 44B of the Securities Act removing MFL as contributory mortgage broker for the Parliament Street mortgage. The Commission has notified MM of a meeting at which it will consider whether or not to exercise any of its powers under section 44B in respect of MM. MM may choose to appear and to be legally represented at that meeting. The Commission may make section 44B orders where it is satisfied that a broker has contravened the Securities Act or regulations and that it is desirable in the public interest to make the orders. The Commission will be considering those matters at the meeting.

RECOMMENDATIONS

132. The Commission understands that there is a practice that a valuer is instructed by the borrower rather than the lender. Contributory mortgage brokers may wish to consider whether they should take a more active role in dealing with valuers. It is the broker and its directors who are responsible under the law for ensuring that their offer documents comply with all applicable laws. It is they who may be liable to compensate anyone who suffers loss as a result of any failure to comply.

133. The BBJ valuer in this case has said that "a clear and direct line of responsibility between the broker and the valuer is essential in order to establish clear instructions and terms of valuation requirements, and to prevent an inappropriate use of valuations compiled for other purposes".

134. As a result of this inquiry, and Commission reviews of other contributory mortgages, the Commission will write to the New Zealand Property Institute asking that they remind all their members of the need to comply with the Contributory Mortgage Regulations, and note that valuers risk civil liability under section 57 of the Act if they fail to so comply.

APPENDIX A

The Promissory Note

(This is a reproduction of the promissory note signed by D. Somers-Edgar and dated 28th September 2001)

To: Mortgage Financier Nominees Limited

We the undersign promise to raise funds to the quantum amount of $27,000,000.00. Such funds represent the full subscription to the loan of $27,000,000.00 to be incrementally advanced to 1 Parliament Street Limited.

We undertake to make good our promise incrementally by or before Friday 29 March 2002.

Authorised signatures

Name

Date 28 September 2001