Strategic Finance receiver questions transactions

Photo / Herald on Sunday

The receiver of Strategic Finance found a handful of questionable transactions when the failed lender suspended payments to investors, and has passed on its findings for lawyers to mull.

PricewaterhouseCoopers' John Fisk said the receiver identified "several transactions undertaken during the December 2007 to August 2008 period which we consider warrant further investigation."

Fisk told debenture holders in a January 28 letter that the receivers have been assisting the Securities Commission in its probe into the lender, including access to Strategic's records and providing analysis on request.

Liquidator Corporate Finance is also looking at one of the transactions flagged by Fisk.

"We have now referred our findings to date to our legal counsel to determine what actions (and against whom) may be available to us in respect of these matters," Fisk said.

Strategic's transactions came under scrutiny in December 2009 when Act Party MP, and now Associate Commerce Minister, 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.

Commerce Minister Simon Power referred the matter to the Securities Commission in March last year.

Fisk said the receiver is using individual loan strategies to try to maximise its recovery after it failed to attract a credible offer for the entire loan book. Between March 12, 2010, and January 15, this year, the receiver clawed back $9 million from gross sales of $55 million as prior ranking security holders claimed their share.

The receiver kept its estimated range of return between 12 per cent and 35 per cent of the principal amount, and Fisk said he wasn't in a position to announce when a further distribution to investors might be made. Last September, some 10,000 investors owed $368 million got their first payment of 2 cents in the dollar, a total amount of $7.4 million.

"There are still considerable uncertainties relating to the recoverability of the property loans which will have an impact on the final recoveries that we will be able to achieve for secured debenture holders," Fisk said.

"The property market continues to be challenging and borrowers continue to face difficulties in achieving property sales or to re-finance."

Strategic was sent to the receivers in March last year 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 last year after 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.