Public Censure of Hallenstein Glasson Holdings Limited

3 August 2023

PUBLIC CENSURE OF HALLENSTEIN GLASSON HOLDINGS LIMITED
BY THE NZ MARKETS DISCIPLINARY TRIBUNAL FOR BREACHES OF
NZX LISTING RULES 2.6.3 AND 2.13.2(c)

In a determination of the NZ Markets Disciplinary Tribunal (the Tribunal) dated 21 July
2023, the Tribunal found that Hallenstein Glasson Holdings Limited (HLG) breached
NZX Listing Rules 2.6.3 and 2.13.2(c).

The HLG Board determined that Mr Popplewell was an Independent Director on 29
October 2021 but did not announce this change to the market until 19 November
2021. The Tribunal found that HLG breached NZX Listing Rule 2.6.3 by not announcing
the change in its assessment of the independence of Mr Popplewell promptly and
without delay.

HLG did not have a majority of Independent Directors on its Audit Committee for
approximately 4 years, from 13 December 2017 until 29 October 2021 as required by
NZX Listing Rule 2.13.2(c). The breach resulted from a misunderstanding by HLG of
the Rules, rather than any intention by HLG to commit the breach.

Given the importance of a properly constituted Audit Committee, the Tribunal
considered that HLG’s failure to comply with Rule 2.13.2(c) was a serious compliance
breach which continued for an extended period. While a breach of this nature has the
potential to cause a significant impact on investors and the market, the potential
impact in this case was reduced because HLG’s Audit Committee was Chaired by an
Independent Director and consisted of only non-executive Directors during the period
HLG was in breach. In addition, NZ RegCo did not identify any actual loss or impact
on investors or the market, or any financial benefit or commercial advantage to HLG,
as a result of the breach.

HLG accepted the breaches at the first opportunity when notified by NZ RegCo, co-
operated fully with NZ RegCo’s investigation of the matter, has taken steps to address
its compliance issues and had a good compliance history before this referral to the
Tribunal. However, the Tribunal was concerned by the ongoing lack of awareness of
this Rule by HLG. HLG had numerous opportunities to identify its error if compliance
checks had been undertaken on the information included in its annual reports during
the period it was in breach. The penalty in this case could have been lower but for the
deficiencies in HLG’s compliance practices.

The Tribunal ordered HLG to pay a financial penalty of $75,000, pay the costs of NZX
and the Tribunal, and be publicly censured in the form of this announcement.

The full determination of the Tribunal in this matter is attached to this announcement.

---

IN NZ MARKETS DISCIPLINARY TRIBUNAL NZMDT 1/2023


UNDER NZ Markets Disciplinary Tribunal Rules


IN THE MATTER OF breach of NZX Listing Rules 2.6.3 and 2.13.2(c)


BETWEEN NZX LIMITED
Acting by and through NZX Regulation
Limited (NZ RegCo)


AND HALLENSTEIN GLASSON HOLDINGS LIMITED
(HLG)

___________________________________________________________

DETERMINATION OF NZ MARKETS DISCIPLINARY TRIBUNAL
21 JULY 2023
____________________________________________________









Rachel Batters
Executive Counsel
NZ Markets Disciplinary Tribunal
Email: rachel.batters@nzmdt.com

2

1. This is a decision of a division of the NZ Markets Disciplinary Tribunal (the
Tribunal) comprising Hon Sir Terence Arnold KC (Division Chair), Jennifer Page
and Mariëtte van Ryn. 

2. Capitalised terms that are not defined in this decision have the meanings given
to them in the NZX Listing Rules (the Rules) or the Tribunal Rules as the case
may be.

Procedural background

3. On 8 June 2023, NZ RegCo filed a statement of case (SOC) alleging HLG had
breached Rules 2.6.3 and 2.13.2(c).

4. On 15 June 2023, Chapman Tripp, acting on behalf of HLG, requested a 10
Business Day extension to submit HLG’s statement of response to give them
more time to take instructions from HLG and assist HLG in preparing its
response. NZ RegCo advised the Tribunal that while it had indicated to HLG a
willingness to support a reasonable extension, it considered that 10 Business
Days went beyond what was reasonable in the circumstances.

5. On 16 June 2023, the Tribunal granted HLG an extension until 6 July 2023 noting
that NZ RegCo had not objected to an extension per se and that there did not
appear to be any prejudice in granting the extension requested (as opposed to a
shorter extension).

6. On 5 July 2023, HLG filed a statement of response (SOR) accepting it breached
Rules 2.6.3 and 2.13.2(c) as alleged in the SOC.

7. On 6 July 2023, NZ RegCo confirmed that it would not be filing a rejoinder.

Factual background
8. HLG is Listed on the NZX Main Board and is subject to the Rules.

9. Mr Graeme Popplewell was an Executive Director of HLG from 1985 to 2016.
Following his retirement as Chief Executive on 31 December 2016, Mr Popplewell
remained on HLG’s Board as a non-executive Director. He also provided
consultancy services to HLG at various times from 2017 until April 2021.

10. On 29 October 2021, HLG’s Board determined that Mr Popplewell was an
Independent Director.

11. On 19 November 2021, HLG advised the market that:

“The Board has determined that Graeme Popplewell is now considered an
Independent Director for the purposes of the NZX listing rules.

In particular, the Board is satisfied that sufficient time has now passed since
Graeme held an executive role with Hallenstein Glasson Holdings Limited for
his previous executive role not to impact on his independence.”

12. In December 2022, NZ RegCo received a complaint from an institutional investor
in HLG, disputing HLG’s determination that Mr Popplewell is an Independent
Director. NZ RegCo advised the Tribunal that it does not dispute HLG’s
determination that Mr Popplewell is an Independent Director and has “closed out”
its investigation into this complaint. The issue of Mr Popplewell’s independence
has not been referred to the Tribunal and, accordingly, is not considered in this
determination.

3

13. During its investigation into the complaint, NZ RegCo identified past breaches by
HLG of Rules 2.6.3 and 2.13.2(c), which have been referred to the Tribunal and
are the subject of this determination.

14. With respect to the breach of Rule 2.13.2(c), NZ RegCo reviewed five accounting
periods – between 2017 and 2021
1
. A review of previous periods does not
appear to have been undertaken.

Timing of independence announcement

15. Under Rule 2.6.3, if at any time a Board decides that a Director’s independence
differs from the position most recently released to the market, that
determination must be released promptly and without delay through MAP
2
.

16. HLG advised NZ RegCo that its Board determined that Mr Popplewell was an
Independent Director at the time it published its 2021 annual report on 29
October 2021
3
. Before that determination, Mr Popplewell was considered a non-
executive Director
4
.

17. HLG says that it identified in November 2021 that it had not “specifically
announced” the change of Mr Popplewell’s categorisation to an Independent
Director. Once identified, HLG says it moved promptly to release an
announcement on 19 November 2021. This announcement was released 15
Business Days after HLG made its determination.

18. NZ RegCo submits that HLG breached Rule 2.6.3 by not advising the market of
Mr Popplewell’s change in independence until 19 November 2021.

19. HLG accepts that it did not announce the change in its assessment of Mr
Popplewell’s independence promptly and without delay.

HLG Audit Committee

20. Under the Rules, HLG is required to have an Audit Committee. The Audit
Committee must have a majority of Independent Directors
5
.

21. HLG’s 2016 annual report, released to the market on 18 October 2016, recorded
HLG’s Audit Committee as comprising the non-executive Directors. HLG had five
non-executive directors, three of whom were Independent Directors. At that
time, HLG’s Audit Committee had a majority of Independent Directors (Mr
Popplewell was then an Executive Director).

22. HLG’s 2017 annual report, released to the market on 26 October 2017, again
recorded HLG’s Audit Committee as comprising the non-executive Directors.
There were six non-executive Directors (with Mr Popplewell’s retirement as Chief
Executive at the end of 2016, he had become a non-executive Director), three of
whom were Independent Directors. HLG advised NZ RegCo that while Mr
Popplewell was a non-executive Director when its 2017 annual report was

1
Annexure 3 of the SOC – NZ RegCo email to HLG of 28 February 2023.
2
At the time of HLG’s breach, the Rules dated 10 December 2020 applied. Rule 2.6.3
remains unchanged in the current version of the Rules, dated 1 April 2023.
3

On page 65 of the HLG 2021 annual report Mr Popplewell is listed as an Independent
Director. On page 59 of that report, he is listed as a non-executive Director.
4
Page 65 of the HLG 2020 annual report.
5
This requirement dates back at least 20 years (based on the archive records available on
www.nzx.com).

4
released, he was not in fact appointed to the Audit Committee until 13 December
2017
6
.

23. With Mr Popplewell’s appointment on 13 December 2017, the Audit Committee
had three Independent Directors and three non-executive Directors. HLG’s Audit
Committee did not have a majority of Independent Directors.

24. During HLG’s 2018 financial year, the composition of its Audit Committee
changed to three members – Malcom Ford (an Independent Director), Warren
Bell (Board Chair and non-executive Director) and Mr Popplewell.

25. HLG’s 2018 annual report, released to the market on 31 October 2018, recorded
the Audit Committee as comprising Mr Ford, Mr Bell and Mr Popplewell. It stated
that “The [Audit] Committee has a majority of independent Directors”
7
. This was
untrue − HLG’s Audit Committee did not have a majority of Independent
Directors.

26. HLG’s 2019 annual report, released to the market on 29 October 2019, recorded
the Audit Committee as comprising Mr Ford, Mr Bell and Mr Popplewell. It stated
that “Although the Committee does not currently have a majority of Independent
Directors in line with Code recommendation 3.1, and did not during the
accounting period, the Board believes the current membership has an optimal
mix of skills and experience to ensure the Committee achieves its objectives”
8
.
This statement was repeated in HLG’s 2020 annual report, released to the
market on 30 October 2020
9
.

27. Code recommendation 3.1 refers to the NZX Corporate Governance Code (the
Code) which, at the time HLG’s 2019 annual report was released, was contained
in Appendix 1 of the Rules dated 1 January 2019. Recommendation 3.1 states
“An issuer’s audit committee should operate under a written charter.
Membership on the audit committee should be majority independent (4) and
comprise solely of non-executive directors of the issuer. The chair of the audit
committee should be an independent director and not the chair of the board”.
Footnote (4) states “The requirement for a majority of independent directors is
set out in Listing Rule 2.13”. The commentary to recommendation 3.1 also sets
out the requirements of Rule 2.13 in full, including that the Audit Committee
must have a majority of members that are Independent Directors.

28. HLG advised NZ RegCo that its Board determined that Mr Popplewell was an
Independent Director at the time it published its 2021 annual report on 29
October 2021. HLG’s 2021 annual report recorded the Audit Committee as
comprising Mr Ford, Mr Bell and Mr Popplewell. It did not include a statement on
whether the Audit Committee had a majority of Independent Directors
10
.

29. During the period under review – 2017 to 2021 – HLG’s annual reports record Mr
Ford, an Independent Director, as Chair of the Audit Committee.

30. NZ RegCo submits that HLG breached Rule 2.13.2(c) (and former Rule 3.6.2(c)
11
)
from 13 December 2017, when Mr Popplewell was appointed to the Audit

6
Annexure 6 of the SOC - HLG email to NZ RegCo of 23 May 2023.
7
HLG 2018 annual report, page 56.
8
HLG 2019 annual report, page 60.
9
HLG 2020 annual report, page 66.
10
HLG 2021 annual report, page 66.
11
There were several amendments to the Rules during the period of HLG’s breach – 1
October 2017 (Rule 3.6.2(c)), 1 January 2019 (Rule 2.13.2(c)), 1 January 2020 (Rule
2.13.2(c), 3 November 2020 (Rule 2.13.2(c)) and 10 December 2020 (Rule 2.13.2(c)). All
required the Audit Committee to have a majority of Independent Directors.

5
Committee, until 29 October 2021, when Mr Popplewell was determined by HLG’s
Board to be an Independent Director.

31. HLG accepts that it failed to have a majority of Independent Directors on its
Audit Committee for a four-year period from December 2017 to October 2021 as
required by Rule 2.13.2(c).

Tribunal approach to penalty

32. The Tribunal must consider the appropriate penalty for HLG’s breaches of Rules
2.6.3 and 2.13.2(c).

33. Under the Tribunal Rules, the Tribunal can impose a fine of up to $500,000 for a
breach of the Rules
12
. Section 9 of the Tribunal Procedures (the Procedures)
13

provides guidance to the Tribunal when assessing the appropriate financial
penalty up to this maximum amount. The Procedures are not determinative.
The Tribunal will ultimately exercise its discretion to determine the appropriate
penalty when considering the overall circumstances of the matter.

34. The Procedures set out a two-step process for the Tribunal to follow:

Step 1 – identify a starting point penalty by assessing the factors relevant to the
breach and the impact or potential impact of the breach; and

Step 2 – adjust that starting point penalty to reflect all the aggravating and
mitigating factors relevant to the respondent.

Step 1: Factors relating to the breach

35. The Procedures set out three starting point penalty bands, within which the
Tribunal will identify a starting point penalty:

Penalty Band Range of Financial Penalty
Penalty Band 1 – Minor Breaches $0 to $40,000
Penalty Band 2 – Moderate Breaches $30,000 to $250,000
Penalty Band 3 – Serious Breaches $200,000 to $500,000

36. Procedure 9.2.1 states that the appropriate penalty band for a breach of the
Rules will be determined based on an overall assessment of the seriousness of
the breach in each case.

37. Procedure 9.2.2 sets out factors which fall within each penalty band which the
Tribunal may consider when assessing the most appropriate penalty band and
the starting point penalty within that band
14
. These factors all relate to the
obligation breached and the impact or potential impact of the breach. As noted
in Procedure 9.2.2, it is unlikely that all the factors within one penalty band will

12
Tribunal Rules 9.1.2(e) and 9.2.2(f).
13
The Procedures came into force on 17 October 2022. When the amendments were
announced, NZX advised that in accordance with Tribunal Rule 1.5.1, any matters referred
to the Tribunal after 17 October 2022 would be considered under the Procedures. NZ
RegCo submits that this referral should be determined under the amended Tribunal Rules
and Procedures. HLG did not dispute this in its SOR.
14
See Appendix 1 for a copy of the table of factors which fall within each penalty range.

6
be present in a particular matter. In most cases, a matter will likely have a
combination of factors from two or more penalty bands. It is also possible for a
matter to fall within a penalty band where only one factor exists. Accordingly,
the Tribunal will use its discretion to weigh up all the factors present to ensure
that they are appropriately balanced.

38. The Procedures differ significantly from the previous Tribunal Procedures dated
29 February 2016 (2016 Procedures). One of these differences is that under the
2016 Procedures, Penalty Band 3 included the following factor “The breach
relates to a fundamental obligation”. Previously, breaches of a “fundamental
obligation”, such as corporate governance breaches, generally fell within Penalty
Band 3. The “fundamental obligation” factor has been removed from the current
Procedures. This means that a breach of a fundamental obligation may not
necessarily fall within Penalty Band 3. The Tribunal must consider all the factors
relevant to the breach when assessing the most appropriate penalty band. This
broadens the Tribunal’s focus from considering the nature of the Rule breached
to considering the overall seriousness of the breach and its impact or potential
impact on investors and the market.

Step 2: Factors relating to the respondent

39. Once the Tribunal has determined the appropriate penalty band and the starting
point penalty, it must then determine the final penalty by adjusting the starting
point penalty to reflect all the aggravating and mitigating factors relevant to the
respondent (Procedure 9.2.3).

40. Procedures 9.2.5 and 9.2.6 set out a non-exhaustive list of factors which are
likely to lower or increase (or reduce the ability to lower) the starting point
penalty
15
.

41. Procedure 9.1.1 notes that the ultimate financial penalty for the breach may fall
outside of (above or below) the starting point penalty band initially identified by
the Tribunal. For example, discounts for mitigating factors may take a breach
initially assessed as falling within Penalty Band 3 to a final penalty of less than
$200,000 (the bottom of the range for penalties in Penalty Band 3).

NZ RegCo and HLG submissions on penalty
42. In summary, NZ RegCo submits that the appropriate penalty band for HLG’s
breaches is Penalty Band 2 and that the appropriate starting point penalty is
$50,000. NZ RegCo gave particular weight to its assessment that there was
limited potential risk associated with the breach of Rule 2.13.2(c) based on
HLG’s “generally stable and profitable trading conditions” during the relevant
period. Given the lack of apparent harm to the market or benefit to HLG, NZ
RegCo submits that HLG’s Audit Committee breach is best categorised as
moderate.

43. NZ RegCo submits that having regard to the mitigating and aggravating factors
in this case, the starting point penalty should be “materially reduced” to a final
penalty of $35,000. NZ RegCo submits that considerable weight should be given
to HLG’s prompt acceptance of the breaches once identified and that the breach
of Rule 2.13.2(c), while it occurred over an extended period, related to a “single
misunderstanding” which should not be regarded as constituting a pattern of
conduct.


15
See Appendix 2 for a copy of the non-exhaustive list of factors which are likely to lower
or increase the starting point penalty.

7
44. NZ RegCo advises that in making its submissions on the appropriate penalty it
“concentrated on the breach of Rule 2.13.2(c)” because, on its own, a breach of
Rule 2.6.3 would not ordinarily be referred to the Tribunal.

45. HLG accepts the $35,000 penalty proposed by NZ RegCo, which takes into
account (a) HLG’s prompt admission of the breaches once brought to its
attention; (b) co-operation with NZ RegCo’s investigation; (c) the breach of Rule
2.13.2(c) resulting from a single error of judgement in misunderstanding the
Rule, rather than any intention to commit the breach; and (d) no identified loss,
or financial benefit or commercial advantage to HLG arising from the breaches,
with NZ RegCo noting that the potential harm caused by the breach was limited
given HLG’s “stable and profitable trading conditions during the relevant period”.

The Tribunal’s assessment

46. The Tribunal begins by emphasising that the scheme set out in the Procedures
for assessing penalty does not operate in a fixed or mechanical way. Procedure
9.1.2 makes this clear, stating that the Procedures are “not determinative” and
that the Tribunal “will ultimate use its discretion in determining the appropriate
starting point penalty band, starting point penalty and ultimate penalty”.

47. Accordingly, the Procedures provide a framework, which identifies some, but not
all, factors relevant to penalty-setting. It encourages a consistent and rational
approach to the fixing of penalties by directing the Tribunal’s attention to a
range of matters, but it allows sufficient flexibility to enable the Tribunal to take
account of the particular circumstances of individual cases. In short, the
Procedures confine and structure discretion but do not eliminate it.

48. Before setting out our assessment of the appropriate penalty in the present
case, the Tribunal notes three matters where it has taken a different view to that
taken by NZ RegCo.

(1) Breaches of both Rule 2.6.3 and 2.13.2(c) relevant when assessing penalty

49. NZ RegCo did not take HLG’s breach of Rule 2.6.3 into account when giving its
assessment of penalty because a breach of that Rule would generally be
considered minor and not warrant referral to the Tribunal.

50. The Tribunal notes that HLG’s breach of Rule 2.6.3 did not occur in isolation but
after its breach of Rule 2.13.2(c). While HLG’s breach of Rule 2.6.3 would not,
of itself, be of any particular significance, it is still relevant to HLG’s overall
conduct. Accordingly, the Tribunal will consider both Rule breaches when
assessing penalty.

(2) Breach of Rule 2.13.2(c) is a serious compliance breach

51. Each penalty band includes, as a factor, whether the breach is a minor (Penalty
Band 1), moderate (Penalty Band 2) or serious (Penalty Band 3) administrative,
operational and/or compliance breach.

52. NZ RegCo submits that HLG’s breach of Rule 2.13.2(c) is a moderate compliance
breach based on its assessment of the limited potential harm, and the lack of
actual harm or benefit to HLG as a result of the breach
16
.

53. The Tribunal notes that whether the breach is a minor, moderate or serious
compliance breach is not an assessment of the overall severity of the breach
(that happens when the Tribunal considers all the relevant factors). Rather, it is
an assessment of the seriousness of the compliance failure.

16
Pages 12-13 of the SOC.

8



54. The requirement for an Audit Committee to have a majority of Independent
Directors is an important shareholder safeguard. This requirement supports an
unbiased and robust audit process and ensures sufficient separation from an
Issuer’s management. As HLG states in its annual reports “The main
responsibility of the Committee is to ensure internal controls are effective,
financial reporting is reliable, and applicable laws and regulations are complied
with”. NZ RegCo notes that Audit Committee deficiencies may lead to a lack of
confidence in the price discovery process, an important component of investor
confidence in market integrity.

55. Given the importance of a properly constituted Audit Committee, the Tribunal
considers that HLG’s failure to comply with Rule 2.13.2(c) is a serious
compliance breach.

(3) Assessment of the potential impact of HLG’s breach

56. To assess the potential impact of HLG’s breach of Rule 2.13.2(c), NZ RegCo
reviewed HLG’s annual reports, financial statements and audit reports for the
relevant period “to assess the nature of the potential risk”. NZ RegCo did not
identify any matters that it considered would “pose particular challenges for an
Audit Committee” and concluded that the potential harm was limited, “given the
generally stable and profitable trading conditions HLG reported during the
relevant period”.

57. NZ RegCo’s assessment of HLG’s trading performance during the period in
breach is relevant to whether there was any actual loss or harm to investors or
the market. It does not, however, provide the correct basis for assessing the
potential impact a breach of this nature could have had. In a case such as this,
the potential impact of a breach is not determined by the relevant company’s
subsequent trading performance. Using subsequent trading performance in that
way runs the risk that a finding of no actual harm will mean that there is no
potential harm either. The key to whether there is potential harm is to look at
the nature of the harm that the relevant Rule is seeking to prevent and to assess
the potential for that harm to occur at the time of the breach.

58. As noted above, a properly constituted Audit Committee is an important
safeguard. The potential impact of failing to meet this requirement on investors
and the market could be significant.

59. During the period HLG was in breach, its Audit Committee was Chaired by an
Independent Director and consisted of only non-executive Directors (according
to HLG’s annual reports). While not alleviating HLG from its obligation to have a
majority of Independent Directors, in the Tribunal’s view the facts that HLG had
an Independent Chair and only non-executive members on the Audit Committee
during the period it was in breach lessened the potential impact of HLG’s breach
on investors and the market given the purpose of this requirement. Based on
these facts, the Tribunal considers that HLG’s breach had the potential to cause
a moderate (as opposed to a significant) impact on investors and the market.

Step 1: Tribunal assessment of the starting point penalty

Penalty Band factors

60. The Tribunal has considered the applicable penalty band factors relevant to
HLG’s breaches and outlines its assessment of these below.

9

Applicable Penalty Band 1 factors

a) Not caused any loss;

61. NZ RegCo has not identified any loss caused by HLG’s breaches. The lack of any
actual harm appears to be supported by the breach of Rule 2.13.2(c) going
unnoticed for four years.

62. As HLG submits, it is unlikely investors were prejudiced by the late release of its
announcement on Mr Popplewell’s independence.

b) No financial benefit and/or commercial advantage;

63. NZ RegCo has not identified any financial benefit or commercial advantage to
HLG as a result of the breaches.

Applicable Penalty Band 2 factors

c) The breach had the potential to cause a moderate impact on investors and
the market;

64. As noted above, the Tribunal considers that HLG’s failure to have a properly
constituted Audit Committee had the potential to cause a moderate impact on
investors and the market. While a breach of this nature has the potential to
cause a significant impact, the potential impact in this case was reduced because
HLG’s Audit Committee was Chaired by an Independent Director and consisted of
only non-executive Directors (according to HLG’s annual reports) during the
period it was in breach.

Applicable Penalty Band 3 factors

d) The breach was a serious compliance breach;

65. As noted above, the Tribunal considers that HLG’s failure to have a properly
constituted Audit Committee was a serious compliance breach.

e) The breach continued for an extended period of time;

66. HLG’s breach of Rule 2.13.2(c) continued for approximately four years. The
Tribunal is concerned that the breach went unnoticed by HLG for such a long
time (this is discussed further below under “aggravating factors”).

Starting point penalty

67. After weighing up all the factors outlined above and assessing the overall
seriousness of the breach, the Tribunal considers that the breach falls within
Penalty Band 2.

68. This decision was finely balanced. Given the Tribunal considers HLG’s breach of
Rule 2.13.2(c) to be a serious compliance breach which continued for an
extended period, the breach could well have been assessed as falling within
Penalty Band 3. However, when weighing these matters against the following
factors in particular, the Tribunal determined that Penalty Band 2 was
appropriate:

a. the potential impact of the breach of Rule 2.13.2(c) was reduced by HLG’s
Audit Committee having an Independent Director as Chair and consisting
of only non-executive Directors;

10


b. no actual loss or impact on investors or the market has been identified by
NZ RegCo; and

c. no financial benefit or commercial advantage to HLG has been identified by
NZ RegCo.

69. As for determining the starting point within Penalty Band 2, the Tribunal
considers that this matter falls within the mid-range of Penalty Band 2. While
NZ RegCo submits that this matter should fall at the low end of Penalty Band 2,
the Tribunal considers that the seriousness of HLG’s compliance breach and its
extended duration elevates this matter within Penalty Band 2.

70. The Tribunal considers that the appropriate starting point penalty is $150,000.

Step 2: Tribunal assessment of factors relating to HLG

71. To determine the final level of penalty, the Tribunal must adjust the starting
point penalty of $150,000 to reflect the aggravating and mitigating factors
relevant to HLG.

Aggravating factors

(1) Breaches were unintentional, but negligent;

72. HLG submits that the breach of Rule 2.13.2(c) resulted from a “single error of
judgement in misunderstanding the nature of the rule, rather than any intention
on the part of HLG to commit the breach”
17
. The breach of Rule 2.6.3 is
described by HLG as an omission it did not identify until after the release of its
2021 annual report.

73. The breaches do appear to have been unintentional. However, they highlight a
concerning and ongoing lack of awareness of the Rules by HLG. It is a long-
standing requirement that an Audit Committee must have a majority of
Independent Directors. It is difficult to see how this could be misunderstood,
given the Code clearly states that this is a requirement of the Rules. HLG’s
failure to identify its error also led to an incorrect statement being made in its
2018 annual report. HLG then made a further error by failing to comply with
Rule 2.6.3. The Tribunal considers that HLG has been negligent in its compliance
with these Rules.

(2) Insufficient compliance procedures;

74. HLG submits that despite the procedures it had in place to follow its obligations
under the Rules, the requirement to have a majority of Independent Directors on
the Audit Committee was missed. HLG erroneously believed it was a Code
recommendation, rather than a mandatory requirement under the Rules.

75. No submissions were made outlining what HLG’s procedures were. Regardless, it
is apparent that the procedures were either inadequate, or they were not
followed.

76. HLG also appears to have failed to do compliance checks on the Audit Committee
information included in its annual reports over a successive number of years.




17
Paragraph 9.3 of the SOR.

11


(3) Recurring breach or pattern of behaviour/conduct;

77. NZ RegCo submits that while the breach occurred over an extended period, it
was caused by a “single error of judgement” and so should not be regarded as
forming a pattern of behaviour.

78. While there may have been a “single error”, HLG had numerous opportunities to
identify that error if compliance checks had been undertaken on the information
included in its annual reports. Those checks should be thorough and robust each
year. HLG’s annual reports included and repeated inaccurate information over a
successive number of years.

79. Had it not been for the investigation conducted by NZ RegCo as a result of a
complaint, HLG’s errors may never have been identified.

80. The Tribunal notes that a separate breach of Rule 2.6.3 also occurred.

Mitigating factors

(1) Early admission of breach;

81. HLG admitted the breaches to NZ RegCo when they were first raised.

(2) Cooperation with investigation;

82. NZ RegCo submits that HLG fully complied with its investigation.

(3) Committed to improving practices;

83. HLG has advised NZ RegCo that it is placing a greater focus on its corporate
governance practices, including an emphasis in ensuring compliance with the
relevant requirements of the Rules and the Code.

(4) Good compliance history;

84. NZ RegCo submits that HLG has a good compliance history. This is HLG’s first
referral to the Tribunal.

Mitigating factor not considered relevant

85. One factor included in Procedure 9.2.5 which is likely to lower the starting point
penalty is, where applicable, a respondent obtains independent legal, accounting
or professional advice that the conduct did not constitute a breach and
reasonably relied upon that advice. NZ RegCo appears to suggest that this factor
applies in this matter because when the breaches were identified by NZ RegCo,
HLG acted promptly to engage external legal advice and accept liability.

86. In the Tribunal’s view, that is not the correct application of this mitigating factor.
It is not a mitigating factor to engage lawyers after a breach has occurred and
while NZ RegCo is investigating. Rather this factor may be relevant in
circumstances where an Issuer takes independent advice prior to deciding on a
course of action and then later seeks to rely on that advice. As noted in previous
decisions, however, relying on such advice may carry little weight as it does not
alleviate a Board from using its own commercial judgement based on its
knowledge of the Issuer.

12

Penalty

87. The Tribunal considers that having regard to the factors noted above, a financial
penalty of $75,000 is appropriate in the circumstances of this case.

88. This represents a 50% discount from the starting point penalty of $150,000.
This reduction is based on:

(a) HLG’s early admission of the breaches;

(b) HLG’s cooperation with NZ RegCo’s investigation;

(c) HLG taking steps to address its compliance issues; and

(d) HLG’s good compliance history before this referral to the Tribunal.

89. This discount could have been higher but for the deficiencies in HLG’s compliance
practices. The Tribunal expects Issuers to understand the requirements under
the Rules and to have processes in place to check compliance. An adequate
compliance review of HLG’s annual report each year would likely have identified
this error much sooner.

90. Under Procedure 9.1.4, the Tribunal may also consider what amount of financial
penalty could deter future breaches by the respondent or other Issuers of the
same or a similar obligation. The Tribunal is satisfied that the penalty of $75,000
will act as a sufficient deterrent. The Tribunal encourages NZ RegCo to remind
Issuers of their Audit Committee obligations under the Rules, as distinct from the
recommendations made in the Code. The Tribunal also encourages NZ RegCo to
remind Issuers that compliance checks should be undertaken on the statements
made in their annual reports each year.

Public censure
91. Procedure 9.3 provides guidance on when the Tribunal may be likely to exercise
its power under the Tribunal Rules to publicly censure a respondent.

92. NZ RegCo submits that none of the grounds favouring non-publication have been
demonstrated in this case, and that accordingly it is appropriate for the Tribunal
to publicly censure HLG for the breaches.

93. HLG submits that a public censure is not appropriate for the breach of Rule 2.6.3,
noting NZ RegCo’s submission that an administrative breach of this nature, in
isolation, would not ordinarily be referred to the Tribunal.

94. HLG accepts none of the grounds in Procedure 9.3.3 clearly apply with regards to
the breach of Rule 2.13.2(c), but that the Tribunal could exercise its discretion
not to publicly censure HLG because it considers that the breach falls at the
lower end of Penalty Band 2, in a situation where HLG promptly admitted the
breaches and fully co-operated with NZ RegCo.

95. HLG submits, in the event the Tribunal does order a public censure, that it
include the mitigating factors in this case – that the breach was unintentional,
HLG promptly accepted the breaches once brought to its attention and that HLG
fully co-operated with NZ RegCo’s investigation.

96. The Tribunal has considered the guidance set out in Tribunal Procedure 9.3,
including that the name of a respondent is likely to be published when:

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a. the impact of the breach has caused the public to be harmed and/or has
damaged public confidence in the sector or the breach had the potential
to cause harm to the public or the potential to damage public confidence
in the sector; and/or

b. the respondent has been involved in repeated breaches and shown
disregard for the Rules; and/or

c. the respondent committed a breach that falls within Penalty Band 2 or
Penalty Band 3.

97. Having regard to the guidance set out in Tribunal Procedure 9.3, the Tribunal
considers that it is appropriate in this case to publicly censure HLG as the failure
to have a properly constituted Audit Committee and for such a length of time had
the potential to damage confidence in the market and the breach falls within
Penalty Band 2.

98. While a breach of Rule 2.6.3 may not be referred by NZ RegCo to the Tribunal on
its own, here HLG’s breach of Rule 2.6.3 followed its breach of Rule 2.13.2(c).
The Tribunal considers it appropriate that the censure also include reference to
HLG’s breach of Rule 2.6.3.

99. The Tribunal notes that its public censure of HLG will be released together with a
copy of this determination in full.

Previous Tribunal decisions

100. The Tribunal considers that its previous decisions involving breaches of the Audit
Committee requirements, as cited by NZ RegCo, were of limited value as a
comparison for assessing the penalty in this case. The decisions made before 29
February 2016 were determined under Tribunal Procedures which had
significantly different penalty bands (a corporate governance breach fell within a
penalty range of $0 to $20,000). The Tribunal’s most recent decisions - NZMDT
5/2019 NZX Ltd v Good Spirits Hospitality Ltd (GSH) and NZMDT 3/2016 NZX Ltd
v Pyne Gould Corporation Ltd (PGC) - were determined under the 2016
Procedures which, as noted above, differ from the Procedures particularly with
regards to breaches of a “fundamental obligation”.

101. The Tribunal notes that in each of its previous decisions cited by NZ RegCo, the
Issuer was publicly censured.

Costs

102. NZ RegCo submits that HLG should pay the costs incurred by NZX and the
Tribunal in relation to this matter. HLG has not made a submission on costs.

103. Generally, where a respondent is found to have breached the Rules the Tribunal
will award the actual costs of NZX and the Tribunal against that party. Given the
circumstances of this case, the Tribunal considers it appropriate to order HLG to
pay the costs of NZX and the Tribunal in considering this matter.

Orders
104. The Tribunal orders that HLG:

a. be publicly censured in the form of the announcement attached to this
determination (which will include a full copy of this determination);

b. pay $75,000 to the NZX Discipline Fund;

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c. pay the costs and expenses incurred by the Tribunal in considering this
matter; and

d. pay the costs and expenses incurred by NZX in considering this matter.


DATED 21 JULY 2023


Hon Sir Terence Arnold KC, Division Chair, NZ Markets Disciplinary Tribunal

15
Appendix 1
Penalty Band Factors
Penalty Band 1 Minor
Breaches
• The breach is a minor administrative, operational
and/or compliance breach.
• The breach has not caused any loss.
• The breach has not had an impact on or has only
had a minor impact on investors, clients, and/or the
market.
• The breach was promptly addressed.
• The breach did not result in a financial benefit
and/or commercial advantage to the Respondent.
Penalty Band 2 Moderate
Breaches
• The breach is a moderate administrative,
operational and/or compliance breach.
• The breach has caused a moderate impact on
investors, clients, and/ or the market.
• The breach had the potential to cause a moderate
impact on investors, clients, and/or the market.
• The breach occurred for a short period of time.
• The breach resulted in a minor to moderate financial
benefit and/or commercial advantage to the
Respondent.
Penalty Band 3 Serious
Breaches
• The breach is a serious administrative, operational
and/or compliance breach.
• The breach has caused significant impact on
investors, clients and/ or the market.
• The breach had the potential to cause significant
impact on investors, clients and/or the market.
• The breach continued for an extended period of
time.
• The breach continued to occur once discovered.
• The breach resulted in a significant financial benefit
and/or commercial advantage to the Respondent.
• The Respondent committed the breach to obtain a
financial benefit and/or a commercial advantage.

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Appendix 2
9.2.5

The following non-exhaustive factors relating to the Respondent may be considered
by the Tribunal as factors that are likely to lower the starting point penalty:
(a) The Respondent admitted the breach at an early stage, and/or self-reported
the breach;

(b) The Respondent cooperated fully and openly with NZX or CHO (as the case may
be) with any investigation surrounding the breach and provided all material
facts;

(c) The Respondent has implemented or has undertaken to implement or enhance
processes, systems, or procedures to prevent similar future breaches;

(d) The breach occurred even though effective compliance / administrative /
operational processes were in place;

(e) The Respondent provided prompt redress for any harm caused as a result of
the breach;

(f) The breach is a one-off event and does not form part of a pattern of behaviour
or conduct;

(g) The Respondent has a good compliance history;

(h) where applicable, the Respondent obtained independent legal, accounting or
professional advice that the conduct did not constitute a breach and reasonably
relied upon that independent advice; and

(i) the starting point penalty having an adverse effect on the ongoing commercial
viability of the Respondent.

9.2.6

The following non-exhaustive factors relating to the Respondent may be considered
by the Tribunal as factors that are likely to increase the starting point penalty or
reduce the ability to lower it:
(a) The breach was caused intentionally by the Respondent, or through the
Respondent’s recklessness;

(b) The Respondent hindered NZX or CHO (as the case may be) with any
investigation surrounding the breach and did not provide all material facts;

(c) The Respondent should reasonably have been aware that the breach could
occur and did not implement or undertake to implement or enhance processes,
systems or procedures to prevent similar future breaches;

(d) The Respondent was aware that its compliance / administrative / operational
processes were not adequate or ineffective and failed to rectify them;

(e) The Respondent failed or delayed in providing redress for any harm caused as a
result of the breach;

(f) The breach is a recurring breach, or forms part of a pattern of behaviour or
conduct;

(g) The Respondent has a poor compliance history; and

(h) Where applicable, the Respondent either failed to seek independent legal,
accounting or professional advice or acted contrary to legal, accounting or
professional advice obtained that the conduct did constitute a breach.