Unguaranteed Viaduct investors likely to get 10-15c in the dollar

Wednesday 10th August 2016

Investors in failed finance company Viaduct Capital who weren’t covered by the Crown's retail deposit guarantee scheme are likely to get back around 10 to 15 cents in the dollar, says receiver McDonald Vague in its latest report.

Viaduct Capital was tipped into receivership in May 2010 by its trustee Prince and Partners, leaving around 110 depositors owed $7.8 million.

Charges brought by the Financial Markets Authority against five men associated with Viaduct and Mutual Finance are currently being heard in a 12-week High Court trial in Auckland. The regulator has also filed an unprecedented civil claim against the trustee on investors' behalf, to be heard next year.

Some 94 Viaduct depositors recovered their money through the Crown retail deposit guarantee scheme, established after the 2008 financial crisis, but 16 depositors who deposited $515,000 after the scheme was withdrawn in April 2009, did not.

They were paid 7 cents in the dollar in June last year, which may ultimately rise to between 10 and 15 cents in the dollar, according to the McDonald Vague report, about half the original estimated recoveries of 20-to-27 cents in the dollar.

McDonald Vague is now awaiting finalisation of a proposal put to Korda Mentha, the receivers for associated company Mutual Finance, and Treasury.

Mutual Finance went under in July 2010 owing around 340 depositors about $9.3 million. They were bailed out by the Crown guarantee. The latest Korda Mentha report says Mutual Finance, renamed Ex-MFL, has repaid Treasury $1.8 million to date and has $1.18 million in cash, which is subject to a dispute with an unnamed party.

In the High Court trial this week, Mutual Finance director Paul Bublitz, who was also the founder of another failed finance company, Strategic Finance, along with Viaduct directors Bruce McKay and Richard Blackwood pleaded not guilty to charges including theft in a special relationship, making false statements in a prospectus, and making false statements to a trustee. Lance Morrison, the long-time accountant of Bublitz and a director of Mutual Finance, faces charges relating to that company.

Another accused, Peter Chevin, pleaded guilty on Monday to 10 theft charges relating to Mutual. Charges against a sixth defendant, Nick Wevers, were withdrawn following his sudden death in March 2014.

Crown prosecutor David Johnstone said Bublitz’s property development company Hunter Capital was “asset rich and cash poor” and got into trouble in 2007. He alleged Bublitz and his co-conspirators deliberately misled investors in Viaduct Capital and Mutual Finance over related party transactions for their direct benefit and to the detriment of the companies.

Deloitte forensic accountant Jason Weir told the court he had to filter more than a million documents and emails for the FMA investigation, which included nine companies under the umbrella Hunter Capital Group.

Weir said Hunter Capital Group posted a loss of $1 million in the year ending March 31, 2008, primarily because it was paying more interest than it was earning on a $27.8 million property portfolio and running a bank overdraft of $4.5 million.

Bublitz had also provided the bank and Wellington Finance (part of South Canterbury Finance) personal guarantees over his borrowings with them to a maximum of $6 million.

The loss narrowed to $509,000 a year later, although its overdraft had risen to $7.5 million.

Documents presented in court show Bublitz and Wevers, then chief executive of Hunter Capital and later of Viaduct, devised a plan to raise investor funds to cover its precarious financial position through buying a finance company that had the Crown guarantee, which spooked investors were keen to use after a spate of finance company collapses. The plan included shifting Hunter Capital investments into Viaduct in small parcels and special purpose vehicles to get around trust deed restrictions.

Weir presented emails to support the allegation that Bublitz set up a shelf company, Phoenix Finance Holdings, to buy Priority Finance (later renamed Viaduct Capital) rather than purchase it directly through Hunter Capital. Initially, it had been intended that 600 of the 900 Phoenix shares held by Wevers and his wife Ingrid would be transferred soon after to Hunter Capital, he said. Instead, 51 percent of the shares were transferred to McKay, though the Crown alleged Bublitz effectively controlled Hunter and Viaduct.

The trial continues with Weir expected to be on the stand for several weeks.

BusinessDesk.co.nz

Comments from our readers

No comments yet