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FMA won’t pursue Wynyard over disclosure failings

Failed intelligence software company Wynyard probably breached continuous disclosure obligations but won't be pursued by the Financial Markets Authority. 

Christchurch-based Wynyard went into voluntary administration in October 2016 after failing to secure emergency funds from shareholder Skipton Building Society to keep it going. Following the company's failure, the FMA and the NZX started investigating whether investors were adequately informed throughout.

"The FMA does continue to have concerns that Wynyard may have contravened its continuous disclosure obligation in late September 2016," it said.

However, "the FMA has decided not to pursue enforcement action against the company. Wynyard is now in liquidation and its shares no longer trade, therefore, there is no reasonable prospect of recovery for investors," it added. 

In September this year, Wynyard's liquidator said it anticipated a very small amount might be available to distribute to shareholders once the software developer's creditors were paid. 

The market watchdog found no individuals breached the Financial Markets Conduct Act. While it has concerns regarding the quality of some of Wynyard's announcements, "it is not clear to us that we could establish a breach of the fair dealing provisions," it said.

Wynyard's directors welcomed the findings of the report that a breach could not be established, but bemoaned the length of time it took for the FMA to reach its conclusion.

They noted the regulator interviewed just two of the five independent directors and rejected the suggestion continuous disclosure obligations were breached. The cash flow deterioration the report referred to would have had an impact on available cash for little more than a week, they said. 

"The directors do not accept this FMA conclusion when considering this matter in isolation, nor in the context of the potential asset sales, progress towards closure of target contract(s), the Skipton facility and a potential capital raise which were in play at the time." 

Wynyard refreshed its board in 2016, appointing New Zealand Venture Investment Fund head Richard Dellabarca, former NextWindow executive Martin Riegel and professional director Fiona Oliver as directors. They joined managing director Craig Richardson, chair Guy Haddleton, and former FBI official Louis Grever. 

As a result of the investigation, the FMA developed recommendations for early-stage issuers and their advisers, including the fact that the board must at all times remain conscious of the need to apply an "enquiring mind" to information received from management. It should also ensure that the minutes of board meetings accurately and adequately reflect the discussion and debate that has occurred. 

Alongside the NZX, it recommended an amendment to the continuous disclosure obligation regarding the definition of awareness. The obligation now extends to information a director or senior manager "ought to have known," it said.  

The investigation into Wynyard focused on determining what information it knew during 2016, and whether any of that could be considered ‘material information’; whether material information was released immediately upon Wynyard becoming aware of it; and if not, whether the material information was subject to an exception from disclosure. 

According to the FMA, the market was aware that Wynyard was in financial difficulty but "there appears to have been limited understanding that the company’s issues were so acute or how significantly the position was deteriorating," it said. 

(This is a corrected version of an earlier article)

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