$10m of investor funds poured into failing Provincial Finance

Almost $10 million in investor funds poured into failing Provincial Finance after it withdrew its prospectus in April, raising questions about the competence of some financial advisers.

Receiver John Waller of PricewaterhouseCoopers last week said $9.5 million in investors' funds was received by Provincial in the month between the withdrawal of its prospectus on April 10 and the subsequent receivership on May 7. Without a prospectus the company was unable to issue debenture stock; the money was held in a trust account and now has been returned to investors.

However, Macquarie Equities investment director Arthur Lim said the continued flow of funds into the failing company revealed a shocking lack of awareness by investors and advisers. "It shows that some of these financial advisers didn't have the foggiest idea what was happening, which begs the question what were they doing advising clients?

"That lays the groundwork for a very strong case to be brought against those particular financial planners. That to me shows glaringly that they didn't do basic due diligence, they weren't tracking what was happening in the marketplace and therefore they failed in their responsibility of care."

Some investment advisers have already come under fire for their recommendation of Provincial Finance to clients.

Christchurch lawyer Grant Cameron said last week he was in preliminary discussions with some Provincial debenture stockholders about action against some advisers.

He confirmed one of the potential grounds for action may be advisers' recommendation of the company's debenture stock when it was reasonably common knowledge in financial circles that the company was having problems with ballooning bad loans in its fast-growing car loan business. Used-car finance, particularly in the Auckland area, became the company's dominant line of business, something of which many of its investors said they were unaware.