Friday 5th July 2013
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By Paul McBeth
The receiver for Strategic Finance has pushed out its deadline to cut a deal with the directors of the failed lender as it begins talking to a third party about settling a potential claim.
PwC's John Fisk has "effectively" completed a deal with Strategic's directors over potential breaches of the Companies Act, but has put the deadline on hold while he enters "without prejudice discussions" with a third party who may face a separate claim, he said in his latest report to investors. If the talks with the third party fall through the receiver intends to pursue the claim in the High Court.
"The deadline for finalising a settlement with the directors has been extended whilst these separate discussions are progressed," Fisk said. "We will provide a further update as soon as possible."
Early on in the receivership, Fisk identified "several transactions undertaken during February 2007 to August 2008" which warranted greater scrutiny from the legal team.
Some 10,000 Strategic investors owed $367.8 million when the lender failed got a Christmas Eve distribution of 1.5 cents in the dollar, taking their return-to-date to 10 cents, and PwC's Fisk estimates they will get between 12 percent and 20 percent of their principal back. That estimate doesn't include recoveries from potential claims.
The receiver has realised a net $44.6 million from the lender's loan book and is working through five key loans not under contract or subject to any arrangement involving property in Northland, Fiji, Australia and two properties where Strategic has a second mortgage.
The Financial Markets Authority is also in talks with the failed lender's directors to settle its civil claim over breaches of the Securities Act.
The FMA gave the board the opportunity to respond as it prepared to file civil proceedings against directors including Kerry Finnigan, Graham Jackson, Marc Lindale, Timothy Rich, Denis Thom and David Wolfenden. It dropped its investigation into former director Jock Hobbs in mid-2011 as the extent of his illness became apparent.
The FMA's predecessor, the Securities Commission, began investigating Strategic Finance in 2009 when former Act Party MP John Boscawen told Parliament the finance company misrepresented about $68 million worth of debt which it classified as second mortgages when they were effectively a third-ranking security. Former Commerce Minister Simon Power subsequently referred the matter to the regulator.
Strategic was sent to the receivers in March 2010 by trustee Perpetual Trust, ending a moratorium arrangement that had been in place since December 2008.
The finance company missed its milestone repayment in January of that year when it failed to generate enough loan recoveries.
It had tried to get out of trouble in a Hanover-style debt-for-equity swap with South Canterbury Finance that would've given Strategic investors a mix of SCF debentures, shares and preference shares, but Perpetual chose to call in the receivers instead.
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