FMA wraps up 4 finance company probes, decides to take no action

The Financial Markets Authority (FMA) says it has completed four of its remaining nine finance company probes and won't be taking action against individuals involved with the four.

The four are former Allied Farmers subsidiary Allied Nationwide Finance Limited, Equitable Mortgages Limited, LDC Finance Limited, and Irongate Property Limited.

The FMA says its investigations focused on possible breaches of the Securities Act and Companies Act and did identify some evidence of non-compliance.

"However, taking into account FMA’s Enforcement Policy, the prospects of success and potential defences, existing returns to investors, and public interest considerations, including the efficient use of public resources, FMA does not intend to take enforcement action," FMA CEO Sean Hughes said.

"FMA has issued a warning letter to the directors of Allied Nationwide Finance saying it is FMA’s view that they likely breached the Securities Act and that better disclosure should have been made to ensure investors were aware of the risks associated with their investment."

Allied Nationwide's directors during the relevant period were John James Loughlin, Philip Charles Luscombe, Susannah Adair Staley, John Lewis Spencer, Paul MacFie, Garry Charles Bluett and Richard Nelson Spiers.

“I acknowledge that investors will be disappointed with today’s decisions, but when we weighed up all the factors, it would not have been appropriate to take proceedings,” said Hughes.

Bryan Connor, general manager for corporate trusts at Allied Nationwide trustee Guardian Trust, told interest.co.nz shortly after the August 2010 receivership the trustee had been concerned about how the finance company would've coped with $70 million worth of debenture repayments due by October 31, and that prior to the receivership Guardian Trust had decided against approving the sale of some loans at discounted values.

Directors reminded of their obligations

Hughes said the directors of these failed finance companies had been reminded of their obligations to comply with all financial markets legislation, and the FMA will continue to monitor their conduct within its general surveillance activities.

“It is our expectation that the directors of these companies will disclose to the market the positions they held at the time of the collapse. The market is entitled to that transparency," Hughes added.

Under the Crown Retail Deposit Guarantee Scheme, secured debenture investors in Allied Nationwide Finance were repaid the principal and interest on their investments. Approximately 97% of amounts owing to secured investors in Equitable Mortgages have also been paid under the taxpayer funded Crown Retail Deposit Guarantee Scheme.

Irongate receivers anticipate that the total distribution to secured bondholders will be about 70 cents in the dollar of principle outstanding at the date of receivership. And secured investors in LDC are expected to get their money back, plus some interest, following last month’s announcement of a settlement with Finance & Investments Partnership, the FMA said.

FMA wants to 'focus on today's issues'

Hughes said the FMA was committed to completing its finance company investigations to enable it to "focus on today’s issues."

“We will be making announcements on the remaining five investigations by the end of 2013.”

The remaining five are probes into Mutual Finance, OPI Pacific Finance (formerly MFS Pacific Finance), an inquiry into civil proceedings against South Canterbury Finance, St Laurence, and Viaduct Capital. See details here.

An investigation into Strategic Finance was completed in February. The FMA concluded six of the company’s directors are likely to have breached the Securities Act but has given them an opportunity to respond.

The FMA inherited 25 finance company investigations from the Securities Commission when it was born on May 1, 2011. So far 32 directors have been convicted. Speaking in July the FMA's head of enforcement, Belinda Moffat, said remaining finance company investigations were expected to be wrapped up by year's end.

Here's some background provided by the FMA today:

Allied Nationwide Finance Limited (in receivership) owed $128 million to 7200 secured debenture holders when it went into receivership in August 2010. Under the Crown Retail Deposit Guarantee Scheme they were repaid the principal and interest on their investment. A further 749 perpetual bond holders who were owed approximately $15.5 million were not covered by the scheme. The directors for the period which was the subject of FMA’s investigation were: John James Loughlin, Philip Charles Luscombe, Susannah Adair Staley, John Lewis Spencer, Paul MacFie, Gary Charles Bluett and Richard Nelson Spiers.

Equitable Mortgages Limited (in receivership) owed $192.3 million to 6000 secured debenture holders when it went into receivership in November 2010. Under the Crown Retail Deposit Guarantee Scheme $170 million was repaid to 3700 investors. The directors for the period which was the subject of FMA’s investigation were: Christopher Albert Spencer, Allan John Wadams, Arthur William Young, David Parkes Forgie, Ross Alexander Aitken and David Scott Ferraby.

LDC Finance Limited (in receivership and liquidation) owed $21 million to 1200 investors when it went into receivership in September 2007. In July 2013, receivers Grant Thornton announced that 468 secured investors of LDC Finance are to receive repayment in full, plus a partial interest distribution. The directors for the period which was the subject of FMA’s investigation were: Kevin Elliott, Christopher John Hardiman, David Gordon Miller, John Charles Janetto. FMA also considered the conduct of auditors, trustees, and professional advisers, including accountants and lawyers involved in LDC in 2006-2007.

Irongate Property Limited (in receivership and liquidation) owed $46.1 million to 1500 secured debenture holders when it went into receivership in May 2011. The directors for the period which was the subject of FMA’s investigation were: Kevin John Podmore, Geoffrey Keith McWilliam, Philip Samuel Newland and Andrew David Walker.