Capital+Merchant put into liquidation

Photo / Jason Dorday

The heat has been turned up on Capital+Merchant managing director Owen Tallentire and his colleagues, with the Official Assignee being appointed as liquidator of the company described by the Companies Office as the worst finance company they've seen.

Capital+Merchant, which maintained a high profile through its sponsorship of TVNZ's prime time news and weather broadcasts, became the 12th finance company to go into receivership in 2007 - two years after Tallentire told the Business Herald: "I don't think there will be a crunch, and if there is, I think we'll find the finance companies can handle it very well".

What the company did not disclose however, was the high level of related party lending it was undertaking.

Receiver Tim Downes of Grant Thornton said yesterday the shortfall of recoveries on previously undisclosed related party loans was a key reason why the company's 7000 retail investors owed $167 million would receive none of their money back in the receivership.

"When you've got stuff when the money's just vaporised you don't get any thing back and that's been the tragedy for the retail investors."

Hamilton-based Official Assignee Les Currie yesterday confirmed he'd been appointed liquidator of the company following an application from the Registrar of Companies.

Downes, who is acting for "vulture" fund Fortress, said he was not particularly concerned about the appointment of the Official Assignee.

Fortress, which is ahead of retail investors in the queue for recoveries, has now been repaid about $21 million and is owed about a further $2 million.

The remaining area for potential recoveries related to insurance Capital+Merchant had taken out over various loans. Insurer Lloyds however, has contested these claims on technical grounds.

Grant Thornton was still conducting cost benefit analysis to decide whether these claims were worth pursuing.

As he has previously indicated, Downes said retail investors' best chance of recovering any of their money lay in the "reasonably significant" potential for claims against Tallentire and other directors and management.

"The Companies Office have looked at some of the things we've disclosed and said this is the worst they've seen."

The Ministry of Economic Development's National Enforcement Unit told the Business Herald it had not been asked to take action against Tallentire and his colleagues, but the Securities Commission confirmed it was looking at taking criminal action against them.

A successful prosecution against the company's directors would open the door for investors to take civil action against them and the appointment of the Official Assignee may aid both avenues of action.

Liquidators have wider ranging powers than receivers including the capacity to interview directors under oath.

Downes accepted that retail investors may be dismayed that Fortress had now largely recovered all of its money while they'd received nothing.

However Fortress, to whom Capital+Merchant turned for funding when retail funding dried up in late 2006, was a legitimate business which had been granted preference over retail investors' claims with the permission of the company's trustee Perpetual Trust.

Perpetual Trust chief executive Louise Edwards said she was still awaiting notification of the Official Assignee's appointment.

Capital+Merchant's second receiver KordaMentha, which is acting for retail investors, is unable to get to grips with the company's affairs until Grant Thornton completes its work for Fortress.

Downes said that was likely to be around the middle of next year.

LOWERING THE BAR
* Former TVNZ prime time news sponsor Capital+Merchant Finance has been placed in liquidation.
* Receiver Tim Downes says the liquidator, with its wider powers, will likely aid potential criminal and civil action against managing director Owen Tallentire and his colleagues.
* Capital+Merchant's 7000 retail investors have been told they will recover none of their $167 million from the receivership.
* Downes says investors' cash was "vaporised" largely via undisclosed related party transactions.
* The Companies Office has described Capital+Merchant as "the worst finance company" they've ever seen.