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Capital + Merchant receivers nearer to making small payment to debenture holders

Wednesday 5th August 2015

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The receivers for Capital + Merchant, the finance company that failed in 2007 leaving 7,500 debenture holders $167 million out of pocket, are closer to making a distribution of some $10 million after settling some claims with first-ranking creditor Fortress Credit Corp and former trustee Perpetual Trust.

In the 16th receivers' report, from KordaMentha's Grant Graham and Brendon Gibson, they say they have settled a claim from Fortress for $113,000 compared to about $3.8 million Fortress had claimed, and made a $539,000 settlement payment to Perpetual against its claim of $614,000. A separate contingent claim from Perpetual "cannot be resolved at this time," they said.

The drawn-out wind-up of Capital + Merchant is unusual for the degree of squabbling between stakeholders. KordaMentha's Graham and Gibson are the second set of receivers, while Perpetual was replaced by Public Trust as trustee last year. The liquidator successfully sued the failed finance company's auditor, BDO Spicers, while the current receivers are in a separate legal dispute with Perpetual and the company's solicitors, set for a hearing in September. Meantime, debenture holders have received nothing.

The receivers got $10.3 million of funds from the $18.5 million settlement between Capital + Merchant's liquidator and the company's audit firm BDO Spicers. Capital + Merchant was placed into liquidation under the control of the Official Assignee in December 2009.

"Since receiving the money from the liquidator, we have been working to pay a distribution to investors", the receivers say. "This has involved having to restore an electronic copy of the investor database from December 2007. We have made good progress in this regard and expect to be in a position to write to all debenture holders within the next month, seeking confirmation of the accuracy of the company's records of their investment details."

Once confirmed, the receivers expect to pay a distribution, with the amount dependent on confirmation of claims, they said.

Former Serious Fraud Office boss Adam Feeley has described the collapse of Capital + Merchant as being as bad as anything that occurred in the industry, because nothing had been recovered for investors. Former Capital + Merchant directors Wayne Douglas and Neal Nicholls, and chief executive Owen Tallentire were jailed for fraud in 2012 for what the Court of Appeal later called “theft on a grand scale”. 

The wash up of the company has been slowed by disputes between the first ranked creditor, trustees, liquidators, receivers and auditor.

KordaMentha filed action in 2012 against the failed finance firm’s trustee and legal firm Stace Hammond alleging breach of contract and negligence. At the time there were no funds to pay for the action and the receivers elected to use a professional litigation funder.

The case has been adjourned pending the outcome of a September hearing on whether the two sides actually reached a settlement in September 2014. Legal fees for KordaMentha’s case are being met by the litigation financier, which will get back any money it spends on the case plus any portion the plaintiffs are made to pay if the claim succeeds or an out of court settlement is reached.

The claim follows a High Court decision last year to replace Perpetual as trustee, due to conflict of interest, with state-owned Public Trust as a trustee of last resort. Perpetual itself had appointed KordaMentha as second receivers for the firm. 

The case is the first time receivers of a failed finance company have gone to court to pursue recovery from a trustee company, which is tasked with protecting investors’ interests.

KordaMentha said in its latest report that without taking litigation funding "we would have been unable to pursue the claim." It said that "given there is no risk to other recoveries, we continue to believe that these parties (Perpetual Trust and Stace Hammond) must be held to account on behalf of investors."

Last week, the Financial Markets Authority dropped civil proceedings against former directors Nicholls, Tallentire, Colin Ryan, and Robert Sutherland, saying the separate criminal convictions it secured, the actions taken by the receivers and liquidators, and the limited assets of the four meant "there would be little prospect of any recovery for investors if it were to pursue its civil claim."

The receivers' latest six-monthly report puts their remuneration at $432,350 including the balance brought forward from previous periods. The final report from previous receivers Richard Simpson and Timothy Downes of Grant Thornton in March 2012, puts their fees and disbursements at $2.16 million.

 

 

 

 

BusinessDesk.co.nz



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