Distributions to Capital + Merchant investors disclosed next month after trustee case settled out of court

Monday 14th November 2016

Debenture holders of collapsed finance company Capital + Merchant will find out by the middle of next month the timing of any further distributions following the settlement of a long-running court claim against the firm’s trustee Perpetual Trust.

A confidential settlement of the case, first filed by the receivers KordaMentha in August 2012, was reached just as the claim was due to be heard in the High Court at Auckland today.

The receivers Brendon Gibson and Grant Graham said in a short statement that the only disclosures to be made will be included in “mandatory statutory reporting” and they have no further comment due to the confidentiality terms of the settlement.

The court action was funded by litigation funders, Australia-based Litigation Lending Services. In their last six-monthly report in August, the receivers said if the claim succeeded, the litigation funder will be the first party to be paid from the proceeds. In addition to being repaid the amount it spent funding the litigation, the funder will also receive an undisclosed portion of the settlement and will take some time to know if investors will receive any return, the report said.

Perpetual Trust’s payout is covered by insurers.

The claim for $94 million in damages alleged a breach of the trustee’s duty of care. The finance company’s legal advisory firm Stace Hammond had already settled with the receivers for an undisclosed sum with the payment held in trust pending the outcome of the Perpetual case.

Capital + Merchant collapsed in 2007 owing 7500 investors $167 million, and interest has been accruing on the debentures since the start of the receivership nine years ago.

Receivers reports show the litigation funders have contributed a total of just over $1.3 million between mid-2013 and May this year. They also show the first receiver Grant Thornton was paid a total $1.85 million in fees until they resigned in March 2013 while receivership payments since the second receiver KordaMentha took over total $1.9 million when around $1 million in legal fees is included.

The finance company’s former auditor BDO Spicers has already agreed to an $18.5 million settlement with the firm’s liquidator, the Official Assignee. In their August report, the receivers said they were closer to making a distribution of $10 million, their share of the BDO Spicers payout, after settling some claims with first-ranking creditor Fortress Credit Corp and Perpetual Trust.

Perpetual Trust was owned by Pyne Gould Corp at the time of the firm's demise but the trustee business has since been sold to interests associated with Andrew Barnes and is now part of the Perpetual Guardian Group that is planning to list in Australia and New Zealand by the end of this year in a $150 million initial public offering.

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.

BusinessDesk.co.nz

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