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Finance Minister Bill English says its quick payout to cover losses by South Canterbury Finance investors will mean "minimal disruption" to the wider economy.
The Government has this morning paid out $1.6 billion to the trustee of South Canterbury Finance, which has just gone into receivership. It has also lent $175 million to the receiver.
Loans won't be called in or assets sold immediately, English said.
"There is no rush to realise the value of the assets in some kind of fire sale."
He indicated it would take three or four years to "claw back the value of the assets".
"It's sad to see a longstanding New Zealand institution in this position," said English. "The Government, like everyone else involved, hoped South Canterbury would be able to work its way through its difficulties, but unfortunately we were advised today that it has been put in receivership."
Govt knew about troubles for a long time - Labour
Labour's Finance spokesperson David Cunliffe says the Government should be transparent about what information it had and when it became available.
It clearly knew about the difficulties faced by South Canterbury Finance for a long time, and serious questions needed to be asked on behalf of New Zealand taxpayers, he said.
"Were there indications of significant difficulties or mismanagement before the original guarantee was made or extended in April this year, and how serious were those problems?
"What advice to the Government was provided by directors and trustees? When will the Government make what it knows about this whole sorry saga transparent to taxpayers who have been asked to foot a bill for hundreds of millions of dollars?"
English said there had been ample opportunities for the owners to save the company including Hubbard putting a lot of his own money for which had earned a lot of respect.
"However, the options have simply run out."
Hubbard would be as distressed as anybody about the receivership, English said.
Events moved quickly
Events surrounding the last big finance company left standing have moved quickly today, with South Canterbury Finance chief executive Sandy Maier earlier this morning saying the impending announcement would have "good and bad" aspects.
* At 9.30 an announcement was made to the NZX saying that its attempts to recapitalise and restructure had been unsuccessful. South Canterbury had then decided to call in the receivers.
* Treasury then put out a press release saying it had already paid out money under the Retail Deposit Guarantee Scheme. This was done immediately, so as to save taxpayers having to pay interest over coming months. It first said a $1.7bn payment would be made, though this has now been changed to $1.6bn.
* Allan Hubbard then issued his own statement, blaming Government regulations for the failure of South Canterbury Finance.
"It has been deeply frustrating and hurtful, over the last nine months, to have been sidelined by my fellow SCF directors, and subsequently straight-jacketed by the Government regulators, from working to save South Canterbury," he said.
* Sandy Maier, in a later news conference, said problems at the company had turned out to be deeper and more intractable than anyone could have imagined.
* Now Bill English has defended the Government's actions, saying its swiftness of action had helped protect the economy from wider disruption caused by the South Canterbury collapse.
Receivership will be 'orderly and well-managed'
English said the arrangement meant the Crown would be the first ranked creditor in receivership apart from those protected by statute such as the Inland Revenue Department, "so it puts the Crown it the position where it is the only party with an interest in the receivership, which means we would then be able to ensure an orderly and well-managed receivership and stewardship of the assets".
That meant the Government was "in the strongest position it could be to minimise any disruption to the local or wider economy".
"It's important to stress, there will be no fire sale of assets in this respect. The receiver will have a number of choices including trying to sell the assets as a going concern."
"If that's not possible of course there is the ongoing receivership managed by the Crown."
English said receivership meant depositors will get $1.6 billion cash in their pockets in the next month and there was now time to manage the companies assets without the pressure to generate cash to meet scheduled repayments.
"There is no rush to realise the value of the assets in some kind of fire sale."
That meant there shouldn't be an immediate impact on land prices for example.
The company would still operate with existing loans in place and there was no pressure to call in loans and disrupt the finance arrangments of the many businesses in the South Island that had borrowed from it.
"There is no reason for that stream of finance into those communities to be disrupted."
As well as the money paid under the Government's Retail Deposit Guarantee Scheme, other steps had been taken, said English, including:
• Nominating the Trustee as the 'eligible creditor' under the terms of the guarantee and will pay the Trustee $1.6 billion in full today. This will ensure depositors and stockholders are paid promptly without the need to apply to anyone.
• The Crown will also make a loan to the receiver of $175 million, which allows it to repay all of South Canterbury Finance's prior ranking debts.
Once this transaction is completed it will put the Crown in a position of control, as the first-ranked creditor in the receivership, so it could ensure an orderly and well-managed receivership process, said English.
He did not believe there would be any more call on the budget set aside for the retail deposit guarantee scheme because virtually every finance company that could fail had already failed.
"Ensuring all depositors in South Canterbury Finance get their deposits back as quickly as possible will ensure a minimum of disruption to the economy," said English.
"While this will incur an upfront cost, it will ultimately reduce the cost to taxpayers by about $100 million by ensuring the Crown is not liable for interest payments after the date of settlement.
Being in control of the receivership process also took the pressure off the receiver to quickly sell any assets.
"This ensures the Crown can get the best deal for taxpayers. Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy.
"The up front cost to the Crown of repaying South Canterbury's depositors is about $1.6 billion, but we would expect to recover the bulk of that as the receiver sells the assets over time.
"The final expected net cost to the Crown is already provided for in the Crown Accounts within the overall provision of about $900 million for all companies covered by the scheme," English said.
In a notice to the sharemarket this morning, Allan Hubbard's $2 billion company said it had been unable to complete a recapitalisation and restructure and as a result Trustee Executors which oversees the interests of South Canterbury's 35,000 investors. had called in receivers Kerryn Downey and William Black of McGrathNicol.
South Canterbury has $1.2 billion in retail deposits and a further $350 million in other securities that are covered by the Government's Retail Deposit Guarantee.
Situation 'critical' for a long time
South Canterbury chief executive Sandy Maier told a press conference this morning South Canterbury Finance was in trouble as early as last year.
"The company has been the subject of acute problems since I came in on December 23."
"When I came in nine months it was a turnaround effort. It was an attempt to put things on the rails and correct things that were not right. A great deal has been achieved over the last nine months in terms of strengthening management, strengthening governance, collecting a lot of money out the loan portfolio."
"It's been a critical situation for a long time."
Maier said the company had been working until 4 this morning with two parties to secure funding but could not come to prices and terms within a timeframe.
"We never felt we had an offer that reflected the price that made up for the detriment of value."
Maier said some of the problems had turned out to be deeper and more intractable than anyone could have imagined.
The time pressure of having to fund such a large entity every day had been difficult, while the statutory management had had an impact on popular perception, he said.
"All of these factors combined have been a heavy weight on us."
While there were few technical connections between South Canterbury and those business interests placed under statutory management, there was a powerful "brand connection", Maier said.
"I'd be lying if I didn't say to you that it's had an impact in the confidence sense and an entity like South Canterbury... operates as creature of public confidence."
However Maier wouldn't say the decision was unjustified.
"We just don't know yet."
Maier said receivership was inevitable when it became clear that negotiations to inject fresh capital into the business could not be completed by today's deadline.
"Receivership is disappointing and we were working very hard up to the last minute to avoid that outcome."
"At the heart of South Canterbury Finance there is a sound business supporting many successful small and medium sized enterprises. That is the core business of South Canterbury Finance and a real contributor to the economic well being of that sector of the economy."
South Canterbury Finance's collapse was inevitable, said one leading business commentator.
New Zealand Herald columnist Brian Gaynor of Milford Asset Management said the company had been on its last legs for some time.
"This was a sick company. You are better to face reality in a situation like this, rather than try to keep something going that really was on its last legs for some time.
"South Canterbury Finance was not a very well-run company and it made a huge amount of very bad loans and inevitably that comes home to roost. And to me this is reality. This is what needed to happen."
"We are all sad that it has happened, but it is probably the realistic approach rather than the government putting more money in the hope things improved."
ADAM BENNETT / NZ HERALD STAFF
