RBNZ, Companies Office, Securities Commission talked statutory management for SCF months before action taken against Hubbard

By Gareth Vaughan

Government agencies were discussing the possibility of South Canterbury Finance (SCF) being placed in statutory management at least as early as October 2009, eight months before the lender's majority owner Allan Hubbard was placed into statutory management in a move that excluded SCF.

A second dump of documents on SCF by the Reserve Bank reveals statutory management was under consideration during a period when the Crown came close to providing SCF with a NZ$60 million bridging loan (see the proposed terms of the seven day loan here) when the company was striving to replace funds raised through a US private placement with a loan organised by wealthy New Zealand businessman George Kerr.

In an email sent by the Reserve Bank's Andy Wood on October 22, 2009  to, among others, the central bank's governor Alan Bollard and deputy governor Grant Spencer entitled "SCF Update - No RBNZ involvement required," Wood said; "Statutory Management remains an option íf the USPP do serve notice and cause a default event. The Cos Office has been asked whether they would be willing to initiate the statutory management process ( í.e.recommend to Sec Com) if SCF default," Wood wrote.

Hubbard, his wife Jean, his company Aorangi Securities and seven charitable trusts associated with the Hubbards were placed in statutory management by Commerce Minister Simon Power following a Securities Commission recommendation and investigation involving the Companies Office, on June 20 last year. The Serious Fraud Office subsequently launched an investigation into Aorangi and a separate one into SCF related party loans. Hubbard, meanwhile, is now seeking a judicial review of the decision to place him and his wife in statutory management.

In another email, dated October 27, 2009 and entitled "SCF Update - Promising,"  Wood told Bollard, Spencer and Toby Fiennes, the Reserve Bank's head of prudential supervision, that the "private sector solution" appeared to be on track. The US investors were willing to be flexible on settlement, he added, albeit charging a US$1 million per day penalty fee.

"If so, SCF would appear to be out of the woods for at least the next month or so," Wood said.

The proposed NZ$60 million Crown loan ultimately wasn't needed as a NZ$75 million loan organised through the Kerr chaired Pyne Gould Corporation subsidiary Torchlight Credit Corp came through, being announced on October 29, 2009. This came, as Neil Paviour-Smith, managing director of SCF's adviser Forsyth Barr put it in another email, "as the company has essentially run out of money."

SCF was approved to participate in the extended Crown retail deposit guarantee scheme on April 1, 2010. However, it was tipped into receivership on August 31 last year after failing to secure new investors, whilst still covered by the initial Crown retail deposit guarantee scheme, triggering costs to the taxpayer of close to NZ$2 billion.

The Reserve Bank's first dump of SCF related correspondence, last November, revealed among other things that the central bank believed SCF paid almost twice as much for a 33.5% stake in Dairy Holdings Ltd from Hubbard in 2009 as it was worth. The earlier information dump also revealed the Reserve Bank was worried that SCF related party transactions potentially breached the Crown retail deposit guarantee scheme as long ago as April 1, 2009.

This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.