BNZ: Property developer bankruptcy in public interest

Patrick Fontein was behind Orewa's Kensington Park housing estate, which has been sold to another developer. File photo / Paul Estcourt

BNZ wants failed Auckland property developer Patrick Fontein declared bankrupt for debts of about $100 million.

But Fontein, developer of Orewa's Kensington Park housing estate, opposes that and has accused the bank of stalking him and calling his creditors to torpedo a partial repayment scheme.

The case before Associate Judge John Faire in the High Court at Auckland yesterday heard submissions from Scott Barker, acting for the bank, telling how Fontein did not dispute the amount of money he owed under loan agreements and personal guarantees.

"The bank's position is that, given the amount of debt involved - almost $100 million - and Mr Fontein's mismanagement of his companies, it is in the public interest and the interests of commercial morality for the court to make an adjudication of bankruptcy," Barker said.

"Mr Fontein claims that an adjudication order will impact his standing in the community and will result in his retirement from several community activities," he said.

Fontein was developing hundreds of houses at Orewa and in Taupo when his businesses went into receivership and liquidation.

Barker said that in September 2008, at Fontein's request, Kensington Park Properties was put into receivership owing BNZ around $47 million. Later, the partially finished project was sold to John Sax for about $20 million, resulting in a big loss for the bank.

In addition, Fontein had other creditors and he had given personal guarantees for more than $120 million, Barker said. He cited others who had borrowed substantial amounts and been declared bankrupted.

"There are hundreds, if not thousands of people who have done what Mr Fontein has done and gone bankrupt. He is no different to anyone else," Barker said, citing legal action against Andrew Krukziener and Nigel McKenna. Yet Fontein was asking for different treatment and opposing bankruptcy.

An affidavit from Anthony George Dench, senior partner in the bank's property finance team, said the bank had remained willing to fund the Orewa project according to the terms and conditions of loan agreements.

But the bank became concerned that some of its money might have been used "other than in accordance with the letters of offer and the loan agreements".

Barker said Fontein used money loaned for Orewa on his Taupo project, a point Fontein disputes.

David Connor, acting for Fontein, told how the bank "chased" Fontein to lend to him at Orewa.

When the project struck trouble and Fontein tried to get creditors to agree to a repayment scheme, the bank opposed that and petitioned other creditors to back it up, Connor said.

The bank gradually tightened loan conditions on the Orewa project, facts revealed in affidavits presented on the bank's behalf, Connor said.

Judge Faire wanted Connor to tell the court what had happened to the money Fontein was earning as a property consultant since his projects failed.

The bank said Fontein had earned more than $600,000 over an 18-month period to the end of last month. But Connor said it would be unfair to penalise Fontein because he had done well lately.

"Our civilisation works on the understanding that you pay your debts," the judge told Connor. But he also mulled what options he had and the legal precedents in ruling on the case.

Connor said the first option was simply to dismiss the bank's application but an alternative was to adjourn it. Then he told how Fontein and his wife Lynley had injected cash from their own personal assets into the Orewa project in an attempt to save it.

Fontein owed the bank more than $40 million when the project was sold to Sax, Connor said, but it was left with just $13 million taking into account receivership costs. Yet it had criticised Fontein for "over-extension and fiscal irresponsibility".

The case has been adjourned until tomorrow.