Legal hell in Fiji paradise

Receivers of Fiji Beach Resort and Spa on Denarau Island say there has been no money to pay investors their promised returns. Photo / Supplied

The poolside villas, the beachfront location, the warm tropical air - it should be paradise.

But for 240 investors in the Hilton on Fiji's Denarau Island, the past 18 months have been more like purgatory. Some forced to mortgagee sale would probably describe it as hell.

Now the trouble in paradise has escalated to the point where owners are about to put padlocks on their villas, potentially disrupting the holiday plans of hundreds at the peak of Fiji's tourism season.

In the mid-2000s, the mostly Kiwi and Australian investors bought villas in Auckland developer Neville Mahon's Fiji Beach Resort and Spa, managed by the Hilton.

The 160-room resort was being developed in stages. Stages two and three with another 90 rooms have never been completed.

The investment attracted some high-profile names: television rugby commentator and former All Black Ian Jones; former All Black and celebrity agent Andy Haden and former Fisher and Paykel chief executive John Bongard.

The deal was that owners would get 10 weeks a year in their villas and the rest of the time earn a handsome return off the rental income gathered from hiring out the rooms.

Apart from one monthly payment from the receivers now in charge of Mahon's companies, villa owners have not seen a cent since September 2008.

When Coffs Harbour property developer Rob Vereyken bought his two-bedroom beachfront villa for $820,000 in 2006 he was promised a return of F$27,000 every three months.

His average quarterly return to date has been F$2500. Meanwhile he is paying $50,000 in interest annually to service the mortgage on the property.

Vereyken says it is impossible to know how much they should have been getting. "We've never seen a statement from Hilton to see what our true occupancy is and returns."

Invercargill investor Trevor Rogan estimates the current total owed to owners is $5.5 million and counting.

Rogan is at the forefront of a group of around 50 investors whose patience has well and truly run out.

They have given the receivers and Hilton notice that they will lock up their villas from August 1 unless a new management contract can be negotiated to give the owners control.

The lock-up is a last resort, Rogan says, but matters have come to a head. "The point is past. We've had enough."

Some have already lost their units to mortgagee sales. "I've had people on the phone in tears over it."

The legal action is now flying. On Friday a court in Lautoka was due to review a temporary injunction gained by the Auckland-based receivers KordaMentha to stop the lock-up going ahead.

This week the Fiji courts will hear the villa owners' bid to have liquidators appointed to Mahon's development company, Denarau International, and will consider amending an injunction from last year blocking all payments to owners.

Owners have been buoyed by a decision in Auckland's High Court two weeks ago in favour of investors in the city's waterfront Westin Hotel.

Justice Paul Heath cancelled the leases of 89 mostly Asian investors owed at least $3.8 million in rental arrears, giving them control of their rooms in the five-star hotel.

The Westin decision has put "the fear of God" into the receivers, Melbourne accountant and villa owner Graeme Knott says.

Receiver Grant Graham denies feeling any such pressure. "We have to get it sorted out, but not because of that."

Graham says a payment of $1.8 million is due to go to owners within the next couple of weeks and he does not believe the lock-up will go ahead.

Because of the impending payout, the injunction gained a year ago by investors blocking any payouts has to be amended.

They got this injunction to protect themselves, Auckland investor Sarah Hunter says.

By this stage they had gone nine months without seeing any money and there were real concerns about where income from the rooms was going.

"The further you investigated and delved into the issues the more questions ... came out of it."

Then Denarau International and its associated construction company, Denarau Investments, were placed in receivership in September last year, with Bank of Scotland owed $45 million and now-failed finance company Strategic Finance owed another $75 million.

The huge sums outstanding are one thing but a key problem for owners has always been the dysfunctional management agreement, Hunter says.

The agreement Mahon reached with villa owners is quite different from the management contract with Hilton, she says.

Owners were promised a 50/50 revenue split but the Hilton arrangement was based on a profit share.

"You've essentially got this three-legged stool and it's tied together with a management [agreement] that Neville structured, which conflicts completely with the agreement he put in place with the Hilton."

Owners want a complete restructuring of the arrangements.

They are committed to making the resort work and may even be prepared to invest in the yet-to-be built common areas in stage two.

Some stage two owners have refused to settle because without facilities Hilton won't rent out the rooms.

"The pool isn't even a hole in the ground yet."

One quarterly payment will not smooth things over, Hunter says. "Until the other issues are resolved it's nothing short of a plaster, really."

Graham concedes the management contract is probably "the worst" among the resorts of Denarau.

Asked why it has taken so long for owners to receive any money, he says there was "simply no money in the pot" when receivers stepped in to Denarau International and Denarau Investments.

The receivers spent months negotiating with a third party, which was looking at taking over all of the resort's secured debt including the amounts owed to villa owners.

That deal has recently fallen through, further holding things up.

But he remains hopeful of finding a solution. "I think we're working constructively with the villa owners' group in what is a tough environment."

Hilton did not return the Herald on Sunday's calls.

Resort running well while investors debate - Haden

The irony of the Hilton Fiji saga is that the resort is actually operating well, investor Andy Haden says.

Speaking from his Hilton villa last week, the former All Black turned celebrity agent said the resort was running at 89 per cent occupancy.

"The maintenance and upkeep and everything looks good."

Haden is critical of the Australian-led villa owner group embroiled in legal action with the receivers.

He is as annoyed as anyone at being out of pocket but he believes last year's injunction to freeze all payments has prolonged the suffering of villa owners.

He says the group speaks for a minority.

"I'm speaking for myself but what I'm saying is echoed by [others].

"If they've got 30, there's probably four times that many thinking along the lines I'm thinking." He describes the threat to lock up the villas as "incredibly dumb".

Investors got tax advantages from the Fijian Government to invest in a resort.

To now turn them into privately-owned villas would be "hoodwinking" the Fijian tax department. The only point he and other investors appear to agree on is the performance of the receivers, who Haden accuses of earning $1 million in fees.

"Did we need all these people with their grandiose ideas to run this thing, to find out that [developer Neville] Mahon hadn't run off with all the money?"

Melbourne accountant Graeme Knott is also critical of KordaMentha and it is one of the reasons the owners' group wants a liquidator appointed, he says.

Quarterly updates on the situation had never materialised, he said, one of a number of obligations that he claimed had not been fulfilled and had added to frustration.

Even developer Mahon claims the current situation is all about fees for receivers. "I think it's an absolute and total value-destroying disgraceful scenario."

But Invercargill investor Trevor Rogan notes there was already $2.1 million outstanding to owners before the receivers went in.

"Mahon got into the position of being in receivership."