Boston Finance in receivership following 20 months in moratorium (Update 2)

Failed finance company Boston Finance has been placed in receivership after operating under a moratorium since March 2008 which recovered 37 cents in every dollar for investors. (Update 2 includes interviews with Perpetual Trust's Matthew Lancaster & Boston Finance's Kingsley Turner.) Around 1,300 investors had almost NZ$40 million invested in Boston Finance at the time of the moratorium agreement, with NZ$14.24 million repayed over its duration, Trustee Perpetual Trust said in a joint statement with Boston Finance and KordaMentha. A further eight loans worth NZ$15.85 million, net of provisions, are yet to be recovered, the statement said. However, "a substantial portion of the dollar value of these eight loans is subject to High Court litigation so it is too difficult to accurately estimate timing and recovery quantum," the statement said. At the time of the moratorium decision, investors were promised full repayment as well as 9% interest over the 20 months.

"(T)he trustee decided receivership was in the best interests of investors because it was now the most effective and efficient option," Perpetual's Matthew Lancaster said. "While a moratorium was the appropriate course of action in 2008, investors' interests will now be best served by a receivership. We are confident that the loan recovery process is now at a stage where a professional receiver can best maximise recoveries of remaining assets," Lancaster said. KordaMentha, which managed the moratorium has been appointed as receiver. Perpetual Trust's Matthew Lancaster said that the expiry date of the moratorium was November 14 and that putting Boston Finance into receivership would save in management costs. Lancaster said the decision would save in other costs, such as not having the expenses involved in calling a further meeting of investors. Lancaster said that by having KordaMentha as the receivers, the company would have receivers who knew the eight remaining loans well and already had specific strategies in place for each of the loans. Lancaster said that two of the eight outstanding loans were in relation to developments that are subject to Blue Chip litigation taken out by people with pre-sales for the developments. Boston Finance spokesman Kingsley Turner stressed that no money was lent by Boston Finance to Blue Chip, and that the loans were made on an arm's length to unrelated third party developers who built developments in which apartments were pre-sold by Blue Chip. Turner declined to say who the developers were. Turner said the buildings were "finished and occupied completed developments in Auckland". Turner declined to comment on the specifics of the other six outstanding loans. The option of receivership also opens up the possibility of legal action able to be taken against Boston Finance's directors. However, Lancaster said that there was "nothing that's come to our attention or KordaMentha's attention over the moratorium" that would constitute legal action being taken. Here is the full announcement:

The trustee of Boston Finance "“ Perpetual Trust "“ has appointed Grant Graham and Brendon Gibson of KordaMentha as receivers of Boston Finance Limited. This ends the moratorium arrangement which has been in place since March 2008. After consultation with the directors and KordaMentha (as moratorium manager) and after reviewing and examining available options, the trustee has decided that receivership is the most appropriate course of action. The view of both the trustee and directors of Boston Finance is that seeking an extension to the moratorium would have resulted in a costly process for investors, with little or no benefit to them. Despite the challenging economic environment, the moratorium has enabled the directors to use their knowledge of the company to maximise recovery of 24 of the original 32 loans and put a strategy in place to maximise the recovery of the remaining 8 loans. Up to this point, the trustee, KordaMentha and the directors of Boston Finance consider a moratorium has been more beneficial than a receivership. At the time of the moratorium in March 2008, 1,300 investors had approximately $38.5 million invested in Boston Finance. Since then, $14.24 million has been repaid to investors equating to a return of 37 cents in the dollar. This includes a distribution of $2.30 million to be made now. There are eight loans to be recovered with a book value net of provisions of $15.85 million. A substantial portion of the dollar value of these eight loans is subject to High Court litigation so it is too difficult to accurately estimate timing and recovery quantum. Perpetual Trust Head of Corporate Trust, Matthew Lancaster, said the trustee decided receivership was in the best interests of investors because it was now the most effective and efficient option. "While a moratorium was the appropriate course of action in 2008, investors' interests will now be best served by a receivership. We are confident that the loan recovery process is now at a stage where a professional receiver can best maximise recoveries of remaining assets." The trustee is sending a letter to investors today to provide more detailed information. For further information about the receivership, investors can contact Grant Graham of KordaMentha on 09 307 7865. Boston Finance is a wholly owned subsidiary of the Australian Octaviar (ex MFS) group which is itself in liquidation.