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Documents show decision-making tight rope on SCF

Fuseworks Media
Fuseworks Media

Wellington, Oct 15 NZPA - Treasury argued in April that South Canterbury Finance (SCF) would fail quickly if it was not invited to join the extended Crown Deposit Guarantee Scheme.

The finance company connected to Timaru businessman Allan Hubbard collapsed on August 31, triggering a $1.6 billion payout under the original Crown Deposit Guarantee Scheme.

Treasury today released hundreds of documents relating to SCF with many deletions of commercially sensitive names and material.

The documents show that statutory management was suggested, that Forsyth Barr, appointed by SCF to help raise new capital, had discussions with many potential investors, and that the Crown turned down a recapitalisation proposal involving Permanent Investments Ltd on August 26.

A Treasury report back on April 1, 2010, considered the issue of whether or not SCF should be invited to join the extended deposit guarantee scheme. The schemes help investor confidence.

At that stage the company had made significant progress. It had appointed three independent directors, appointed new auditors, restructured its management and undertaken a $150 million re-capitalisation at the end of February 2010. It secured a further injection of $22m from its parent to remedy a breach of a covenant in its trust deed.

It was not considered unrealistic to expect that the company could succeed if approved for the extended scheme, Treasury said.

"It is considered that a decision to decline the application would result in the failure of SCF in the very short term due to illiquidity, resulting in a call on the Crown's guarantee," Treasury wrote.

On March 9 the Securities Commission advised that it was broadly comfortable with the company's recently announced unaudited December 2009 half-year accounts, Treasury said.

The Companies Office was also not aware of any information that would be relevant to the decision to invite the company to join the extended guarantee.

Later on when the company was struggling the documents reveal a proposal from an unnamed company to buy SCF. The deletions make it difficult to assess the proposal but the buyer was seeking to purchase after the receivership and was planning to pay in instalments over time.

Korda Mentha said that three recapitalisation proposals were presented to SCF through the process that Forsyth Barr ran and the company advised Treasury that only one was viable.

Korda Mentha said that a receivership would provide a clear path to the Crown recovering its exposure.

There was a risk under the proposal presented that the Crown's net position could be worse.

Treasury also advised that if the Crown were to support recapitalisation options it would expose the Crown to significant policy risks.

Crown support for any recapitalisation could change the incentives upon firms, both within the guarantee and outside of it to seek private sector solutions ahead of government ones and raise fairness issues, including why the Government had stepped in to prevent SCF from defaulting, when it had allowed other entities to default.

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