31 Aug 2010

South Canterbury Finance in receivership

9:53 pm on 31 August 2010

One of New Zealand's biggest finance companies, South Canterbury Finance, is in receivership.

The company, established in Timaru in 1926, owes about $1.6 billion to 35,000 investors and had been seeking fresh capital to fix a breach of its Trust Deed.

However, South Canterbury Finance says it could not reach an agreement with three interested parties in time and has asked its trustee, Trustee Executor, to put it in receivership.

The move was announced to the New Zealand Stock Exchange on Tuesday morning.

McGrathNicol have been appointed as receivers and investors will get their money back under the Government's retail deposit guarantee scheme.

The Government is paying $1.6 billion upfront but expects to recover about $1 billion of that through asset sales over the next three to four years.

Finance Minister Bill English said on Tuesday the Government would also lend $175 million to the company's receivers so they can repay all prior ranking debt. Once that is done, the Government will become the company's first ranking creditor.

Mr English said the Government was moving quickly to repay depositors, minimise costs to taxpayers and ensure there is minimal disruption to the wider economy.

Prime Minister John Key said the Crown's net liability for South Canterbury Finance is about $600 million and the Government has been assured paying out investors will not damage New Zealand's credit rating.

Mr Key said if it wasn't for the retail deposit guarantees scheme, South Canterbury Finance would have been in same position two years earlier.

He said the $600 million cost to taxpayers is small compared with the deterioration of the Accident Compensation Corporation, and the Government has done all it can to ensure the least disruption in the marketplace.

The Labour Party said repaying the investors is a huge burden for taxpayers - many of whom are struggling to save for themselves. Leader Phil Goff said South Canterbury Finance's fate was sealed by the Government's inability to turn the economy around.

Gradual sale of assets 'a mistake'

The man who has led South Canterbury Finance since December last year says a gradual sale of assets would be a mistake and more money would be made if the company was sold as a complete concern.

Sandy Maier believes South Canterbury Finance is worth close to $2 billion and stripping out bad debts would leave it with about $1.2 to $1.4 billion of value.

But spending time to sell assets could lead to their devaluation, in part because of the continuing cost of legal and accountancy fees.

Mr Maier said it was a good day for investors, who feared not getting paid as a result of the company's financial crisis, and the Government has delivered a major win for lenders.

He said he worked unsuccessfully until about 4am on Tuesday trying to save the company, but ran out of time.

Timaru should be grateful, says English

Finance Minister Bill English said investors and the people of Timaru should be grateful the taxpayer is repaying South Canterbury Finance's investors.

Mr English said the Government would prefer to spend the money on schools and hospitals, and regardless of the varying opinions on how the company was run and the personalities involved, taxpayers will end up with a $600 million bill.

"Without that support, Timaru and South Canterbury could have ended up $600 million out of pocket. And I would expect to hear a bit more from that community about their acknowledgement of the taxpayers' support of that business."

Prompt repayment, says Treasury

The Treasury says all depositors and stockholders on South Canterbury Finance's register will be promptly repaid when an up-to-date list is available.

Because the Trustee has been nominated as the eligible creditor, Acting Treasury Secretary Gabriel Makhlouf said some depositors and stockholders who may not have previously been repaid will now get their money back from the Crown.

While this will incur an upfront cost, he said it is cheaper overall, because it avoids the need for the Crown to make future interest payments.

Mr Makhlouf said depositors and stockholders will not need to meet citizenship and tax residency criteria.

Statement by receivers

A statement issued on behalf of the receivers, McGrathNicol, says:

"The Receivers have taken possession and control of all of the assets and undertakings of the SCF Group.

"Over the next few weeks the Receivers will be working closely with senior management to review the status of the companies and the immediate priorities, and to assess the various initiatives undertaken by senior management to restructure the companies' affairs.

"The Receivers will also be working closely with Treasury and the Trustee to facilitate the provision of information to ensure that investors holding securities issued under the Trust Deed, and protected under the Crown Deposit Guarantee, will be paid out as quickly as possible."

SCF group

South Canterbury Finance Limited (In receivership), Belfast Park Limited, Braebrook Properties Limited, Face Finance Limited, Fairfield Finance Limited, Flexi Lease Limited, Galway Park Limited, Helicopter Nominees Limited, Hornchurch Limited, Rental Cars Limited, SCFG Systems Limited, Sophia Investments Limited, Southbury Insurance Limited and Tyrone Estates Limited.