FMA makes final call for Hanover investors to lodge settlement claims

Tuesday 12th December 2017

The Financial Markets Authority is urging the last 582 former Hanover Finance investors to lodge their claim on the $18 million settlement reached with the failed lender's directors and promoters.

The market watchdog today said investors have until Feb. 16 to lodge a claim. Deloitte was hired to work out the distributions and has managed to contact all but 72 of the 4,481 eligible investors. Of those contacted, 3,799 have been paid a total of $15.5 million and claims from another 100 investors totalling $258,000 are being processed. That leaves 582 eligible for $1.3 million that have been notified but haven't lodged a claim.

"We strongly encourage these eligible investors, or family members of eligible investors, who still need to claim their money, to contact the Hanover distribution team at Deloitte," FMA said.

The 72 investors Deloitte couldn't track down would have been eligible for payments totalling almost $243,000. Money not claimed will go to Inland Revenue.

FMA settled with former Hanover directors and promoters Mark Hotchin, Tipene O’Regan, Greg Muir, Bruce Gordon and Dennis Broit in 2015, including an unspecified amount from their insurer, ending a $35 million civil claim first filed in the High Court in 2012. Hanover principal Eric Watson, who wasn't a director of the companies and denied being a promoter of the offerings, was excluded.

The regulated reached the settlement saying it was a better outcome for investors than waiting even longer for a court case and possible appeals to be concluded. The FMA 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.

Hanover depositors have been paid 16 cents in the dollar, United stockholders 19 cents, and Hanover Capital bondholders 6.5 cents in the dollar.

Once the final payments are made, it will have been almost a decade since the Hanover group first froze payments when the local finance sector collapsed under the pressure of highly leveraged property developments struggling to generate enough cash to meet interest payments as credit conditions tightened.

Hanover investors got an initial payment of 6 cents in the dollar in 2009 in a planned five-year moratorium on interest payments, which was seen as a better alternative to receivership. After that, Hanover's directors opted an alternative route when they realised their best-case scenario would see a 70 percent return of investors' principal.

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.

(BusinessDesk)

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