Capital+Merchant recovery "nil"; NZ$41.1 mln of related party loans uncovered

The receivers of failed finance company Capital and Merchant Finance revised their estimated recovery for debenture holders to "nil" and uncovered NZ$41.1 million of loans that contained certain "related party elements", but were not recorded as related party loans. Of the NZ$41.1 million, only NZ$1.75 million, or 4% would be recovered, with the balance having to be written off, receivers Tim Downes and Richard Simpson of Grant Thornton said in their latest report on the state of Capital and Merchant Finance. The NZ$41.1 million of loans containing related party elements had been highlighted to the relevant authorities and were under investigation. Downes told interest.co.nz that the relevant authorities were the Securities Commission and the Companies Office. Downes declined to comment on the nature of the unrecorded "related party" loans. At the time of the receiver's appointment in November 2007, NZ$37.6 million of related party loans were recorded as being lent to six companies controlled by either Owen Tallentire, Neal Nicholls or Wayne Douglas. The former two were directors of the failed finance company when the receivers were appointed and Douglas resigned as a director in February 2007. Interest.co.nz has been trying to contact Capital and Merchant's Trustee, Perpetual Trust, to ask if there was a provision set out in the finance company's trust deed that stated how much of its loan book could be lent to related parties. We have not been able to get hold of the Trustee. The story will be updated when we do. Meanwhile, the receivers revised their estimated recovery for Capital and Merchant investors to "nil". This was down from an initial estimate between 14-59% of the NZ$167 million invested by around 7,000 retail investors. "Unfortunately the loan quality, the deteriorating property market and lack of alternative credit to facilitate refinancing options have had an adverse effect on our ability to recover outstanding loans and assets," Downes and Simpson said. "As a consequence we now revise our estimate of recoveries to debenture holders to a recovery of up to 2% of their investment prior to interest accrued on the first chargeholders debt and receivership costs. After accrued interest and receivership costs we expect recoveries to be $nil for debenture holders from the assets of the company. We believe the only recoveries for debenture holders will be from insurance claims and any legal claims against various parties," they said. Grant Thornton has been paid NZ$1.2 million in receivership fees and disbursements, while legal fees over the period of receivership to November 23, 2008 were NZ$0.4 million. Korda Mentha is also a receiver for Capital and Merchant and is acting for Perpetual Trust. Here is the full report.