Equiticorp investors to be repaid a further NZ$7 mln cash 21 years on from its collapse

By Denise McNabb

Two Australian Equiticorp subsidiaries have been raised from the dead more than 14 years after being struck off the companies register so NZ$7 million recovered in the UK can wend its way back to New Zealand for distribution to 3,000 investors in Equiticorp Holdings.

The stash could be swelled further by another small recovery from a loan made to a company in the Netherlands and - on another front - protracted court action in Malaysia.

For some patient investors the money will represent taxable interest on their stock as many have already received 100 per cent of their principal back thanks to a hefty settlement between Equiticorp’s statutory managers and the New Zealand government in 1998.

In a landmark case the government agreed to a NZ$267.5 million out-of-court settlement for Equiticorp investors as full and final settlement of the Crown’s role in Equiticorp’s illegal purchase of the government’s 89.9 per cent stake in NZ Steel in 1987.

Equiticorp was a finance and investment company with 153 subsidiaries in New Zealand and globally when it collapsed spectacularly into statutory management on 22 January 1989 owing investors and creditors hundreds of millions of dollars.

The exact amount has never been quantified. Former Equiticorp boss Allan Hawkins was jailed for six years in 1992 (but served only two-and-a-half) after being found guilty on seven fraud and conspiracy charges totalling NZ$87.9 million. He re-emerged as chief executive of recently privatised finance company Cynotech Holdings.

The latest cash find in the UK will eventually come back to Equiticorp Holdings because the company owns preference shares in Australian subsidiary Capitalcorp International Investments Ltd (CIIL). This company owned Capitalcorp Alpha Investments Ltd (CAIL) in Australia, which in turn owned preference shares in English Equiticorp subsidiary, Capitalcorp Investments UK (CIUK).

In late 2008 the liquidator of CIUK contacted Equiticorp’s statutory managers to say he had recovered some funds. There was £3.4 million (NZ$7 million) left after paying CIUK’s creditors so he would be able to make a partial redemption of the preference shares owed to CAIL. The problem was that liquidators of the two Australian companies had never expected any recovery so CAIL was removed from the companies register in 1992 and CIIL was wound up in 1996.

Equiticorp statutory manager Bruce Stowell said in his latest report to Equiticorp’s debenture holders this month that if the companies were restored then the funds from the redemption of the UK preference shares would then flow on to Equiticorp Holdings.

The statutory management team was successful in its application in the Supreme Court of New South Wales on May 3 to restore the companies and Joseph Hayes and Murray Smith of McGrath Nicol were appointed liquidators on June 3.

Stowell says there were no known creditors of the two Australian companies when they were removed from the register but the new liquidators were required to advertise for any to come forward if they had claims as creditors ranked ahead of the redemption of preference shares. The liquidators also have to find out whether the distribution is assessable for tax purposes.

All going well they think it’s possible to make a distribution in the next year.

Meanwhile a case against elderly Malaysian investor Cheah Theam Swee to recover NZ$70 million he borrowed from Equiticorp rumbles through the Malaysian courts.

The statutory managers have been subjected to a raft of delaying tactics, primarily by Cheah’s brother Dr Cheah Theam Kheng who fronts for much of the court action.

The managers have been at the forefront of court action to ensure they are in the correct pecking order for Equiticorp’s share of the sale of 2.99 hectares of Cheah’s land divided into 16 lots of commercial property below the famous Kuala Lumpur tower in the CBD area of Malaysia’s capital. The action has been in tow as long as Equiticorp has been in statutory management but there may yet be a silver lining for investors because the longer it takes the more valuable the land becomes.

Valuations have ranged from 200 million ringgits (NZ$87.18 million) to 275 million ringgits (NZ$119.9 million).

*Denise McNabb is a freelance financial journalist based in Sydney who has written for The Independent and Fairfax Media in New Zealand and Australia. She is an Equiticorp Holdings debenture holder and has received all her principal and some interest back from her investment.