Government guaranteed Mascot Finance placed in receivership (corrected)

Mascot Finance became the first finance company with the government's retail deposit guarantee to be placed in receivership, only seven weeks after it was guaranteed. Mascot has 2,558 debenture holders with NZ$70 million invested. Treasury Secretary John Whitehead said that all eligible Mascot Finance depositors will get 100% of the money they are entitled to under the Crown's guarantee. (Updated with correction of Chris Lee's comments.) Mascot's trustee, Perpetual Trust said: "In continually reviewing impairments in the loan book the Board has concluded that a major loan is now unlikely to be recovered in full. A write down of that loan would result in a breach of the Company's trust deed. The Trustee and the Board of Directors of the Company concluded receivership was the best option to protect all investors and to ensure all investors are treated fairly." Perpetual Trust Chief Executive Louise Edwards said she could not provide further information on the major loan, citing commercial sensitivity. Late on Monday, Kapiti Coast financial advisor Chris Lee said Westpac called in a first mortgage on the Threepwood project at Lake Hayes, forcing Mascot Finance into receivership because it had a second mortgage Westpac had moved a loan on the Threepwood development near Lake Hayes to its recoveries unit. Westpac confirmed to interest.co.nz. that it was the first security holder of the Threepwood development, "and the title will show that Mascot is a subsequent charge holder." The Threepwood website shows just 20 of the 53 lots for sale in the lifestyle project have been sold. The lots cost from NZ$750,000 to NZ$4 million.

Treasury's response was co-ordinated with the public announcement by Perpetual and Mascot. "The deposit guarantee scheme was put in place to give New Zealand depositors confidence that their money would be secure in the event an approved financial institution failed," Whitehead said. Mascot stopped accepting deposits in mid-September 2008, one month before the deposit guarantee scheme was announced. At the time, Mascot said it would repay debenture stock and deposits as they became due. The company was given the guarantee on January 12, exactly seven weeks before it failed. "The Crown stands behind the deposit guarantee scheme, and Mascot Finance depositors can be assured that they will get back all of the money they are entitled to under the guarantee," Whitehead said. "The Treasury will aim to pay out guaranteed deposits as soon as is practically possible. Straightforward claims should be able to be paid out shortly after a claim is due and payable, but more complicated claims can be expected to take longer. We appreciate the cooperation and patience of affected depositors, he said." "While the Mascot Finance receivership is clearly of concern to those involved, New Zealand's financial sector remains sound, and people can continue to have confidence in it." Deposits covered by the guarantee include the principal sum deposited, along with interest accruing in accordance with the terms of the deposit up to $1 million per depositor, per institution. Deposits made and interest earned both before and after Mascot Finance's approval are covered, Treasury said in a statement. Deloitte partners, Brett Chambers and Paul Munro will be Mascot's receivers. Mascot's major shareholder and director is Ken Lane. Other directors are Judith Lane, Brian Kreft and David Stock. The company is based in the South Island, with its registered office in Timaru. You can read the Crown Deed of Guarantee with Mascot Finance here. The Mascot failure takes the total amount of frozen deposits in New Zealand financial institutions to NZ$6.096 billion from approximately 182,400 deposits. For a list of failed financial institutions in New Zealand, see our Deep Freeze List. To see how much receiverships have cost investors, see our Deep Fees List.