Hanover investors to get first cash payment in six years as Deloitte prepares settlement

Friday 6th November 2015

Investors in the failed Hanover group of companies will get their first cash payment in more than six years as accounting firm Deloitte prepares to make a distribution from this year's $18 million settlement.

Deloitte will make the first distribution "in the coming days" with the process running to schedule, a spokesman told BusinessDesk. The accounting firm was appointed to work out payments on a pro rated basis when the Financial Markets Authority cut a deal with former Hanover directors and promoters Mark Hotchin, Tipene O’Regan, Greg Muir, Bruce Gordon and Dennis Broit, in July, including an unknown contribution from their insurer, ending a $35 million civil claim first filed in the High Court in 2012.

That deal excluded Hanover principal Eric Watson, who wasn't a director of the companies and denied being a promoter of the offerings.

In August, Deloitte told Hanover investors that it anticipated a payment being made in October, before saying it would be made in November, and a spokesman said the timeline was in line with plans.

The FMA cut the deal, which will be the final payment for investors, because it felt it was a better outcome for them than waiting even longer for a court case and possible appeals to be concluded. The regulator had frozen Hotchin's personal assets for almost five years and given up on chasing a criminal case when filing the civil suit, which it saw at the time of having the best chance of success.

Of the 16,500 investors across Hanover Finance, Hanover Capital, and United Finance, it was initially estimated about 5,500 of them were eligible for a payout, with the $35 million claim and resulting settlement covering the period between December 2007 and July 2008. Payouts will likely range from 5 cents in the dollar up to 20 cents, depending on which company they invested in.

The cash return will be the first for the investors since September 2009 when they received an initial payment of 6 cents in the dollar. Hanover froze payments a year earlier as the local finance sector collapsed under the pressure of highly leverage property developments struggling to generate enough cash to meet interest payments as credit conditions tightened.

Hanover initially planned to repay investors over a five-year period, which it thought would deliver a better result than receivership. But after the first payment was made, it realised it could only repay under a best-case scenario 70 percent of investors' principal and decided instead to go down a new route.

That led to Hanover investors agreeing to swap their $300 million or so of debt for shares in Allied Farmers in 2009, after being convinced the merged loan book would create a lender of scale that would become a top 50 company. As Allied wrote down the value of the Hanover loan in successive years, those investors had the value of their shareholdings chipped away to become virtually worthless, and were diluted down even further after expected benefits of the deal failed to materialise.

In selling the merger, the debenture and noteholders were convinced the Allied shares would see Hanover secured depositors receive a total 78 cents in the dollar and United secured stockholders would get 90 cents, while subordinated noteholders and capital bondholders – who were to receive nothing under the moratorium - would get 30 cents in the dollar.

Since June 2008, just before the Hanover freeze on payments, inflation has reduced local purchasing power by 11.6 percent, according to the Reserve Bank's inflation calculator.

BusinessDesk.co.nz

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