KEY POINTS:
The directors of Five Star Finance lived in multimillion-dollar homes, drove expensive cars and took holidays to the Mediterranean.
One director's daughter received $400,000 months before her debenture matured. But a retired couple who wanted to cash a $50,000 investment to pay for the husband's cancer treatment lost everything.
So far only $95,000 of $42 million has been recovered for the investors.
The revelations come as part of a Herald on Sunday investigation into the failed group of finance companies directed by Marcus MacDonald, Nicholas Kirk and Anthony Bowden.
Neither Kirk nor MacDonald could be reached for comment but Bowden said lawyers had advised them to remain silent. He said that, as a non-executive director, he had no day-to-day dealings in Five Star Finance.
"I'm desperately sorry for everyone and we have lost tremendous amounts of money ourselves," said Bowden. "It's stressful for everyone involved but that's all I can say."
The Herald on Sunday can reveal:
More than $42m is unlikely to be recovered from Five Star Finance and a further $40m from subsidiary Five Star Consumer Finance.
Investors in Five Star Debenture Nominee were told all money would be invested into secured consumer loans. But the liquidator says at least $14.5m was loaned unsecured to companies and trusts that may be associated with either the directors or an employee of the Five Star Group.
A daughter of Kirk received $400,000 before her debenture investments matured so she could build a house last year. Although this was not illegal, the liquidator has asked whether this money should be returned.
Months later, a retired Auckland couple asked to cash $50,000 when the investment matured to pay for the husband's cancer treatment but the company went under a week later. They have lost $260,000 - even with health insurance, they cannot afford private treatment for the bowel and liver cancer. "It just seems so unfair," says his wife. "This is just eating us up, it is all consuming. We trusted these people. We are retired now, we have no way of earning the money back." MacDonald had been the woman's lawyer for 40 years.
One North Shore family expects to recover "zip" of $12m in debentures.
Most Five Star Debenture Nominee investors are close to retirement and some have been forced back to work.
Marriages have split and some investors are clinically depressed.
Meanwhile, multimillion-dollar properties owned by Kirk, MacDonald and Bowden have recently been sold.
The trio are listed in business together in more than 100 companies, two registered to the Cayman Islands.
Most of the 200 investors in Five Star Debenture Nominee (which invested $42.5m in Five Star Finance) were acquaintances who entrusted the experienced businessmen with their life savings.
Angry Five Star Debenture Nominee investors told the Herald on Sunday they believed all the money invested was supposed to finance secured personal loans of between $3000 and $5000. They were shocked to discover that at least $14.5m was invested into commercial loans, some unsecured.
The Securities Commission is investigating after receiver PriceWaterhouseCoopers found there were 72 "high-value, complex" Five Star Consumer Finance loans to private individuals. Receiver Richard Agnew said the loans appeared to be outside normal commercial lending practices, and a letter from the liquidator says "significant advances" were loaned to companies and trusts which may be associated with either the directors or an employee.
Last August, Five Star Consumer Finance went into receivership owing $54.4m to 2300 investors, who are expected to receive as little as 25 per cent of their investment.
Shortly after, subsidiary company Five Star Finance went into receivership and the receiver, Ray Burgess, painted a gloomy picture for investors.
Reports from both Agnew and Burgess detail a tangle of related-party loans between various members of the Five Star Group, which parent company Antares Finance Holdings is at the centre of.
Five Star Finance was financed by 200 nominee debenture holders, who invested $42.5m into Five Star Debenture Nominee. A letter from Paul Sargison, liquidator of Five Star Debenture Nominee, said it was clear that any successful recovery for creditors would rest on the recovered assets of Five Star Finance. To date, only $95,000 of the $42.5m has been recovered.
"There appears to have been significant advances to a number of companies and trusts which may be associated with either the directors or with a person who was employed at Five Star Group by the directors," Sargison wrote two weeks ago.
The directors have refused to let Sargison become the liquidator for Five Star Finance, so he has hired lawyers to petition the High Court to appoint him. "There are likely to be grounds for actions against a number of persons in connection with the collapse of Five Star Finance Ltd.
"But in order to bring these matters to Court, a significant amount of investigatory work is required to be undertaken," he wrote.
Investors have been asked to donate another 1 per cent of what they had invested to raise $200,000 for a "fighting fund" to recover the debenture holdings.
Sargison confirmed that he had also written to the daughter of director Nicholas Kirk, after it was discovered she received several payouts totalling nearly $400,000 last year before her investment matured. Sargison has officially asked her whether the early payments could be a "voidable preference" and should be returned.
"They have responded, I've yet to get legal advice on whether we could proceed. Nothing is cut and dried at this stage," Sargison said.
The payment to Kirk's daughter has angered many Five Star Debenture Nominee investors, some of whom have lost millions of dollars.
One North Shore family invested $12m into Five Star Debenture Nominee. A senior family member, who is a successful company director, says: "We're looking at zip. I tell everyone we're not getting anything back."
Two weeks before the company went into receivership, he said he invested another $300,000 at the request of a senior Five Star Finance consultant, money that was to be used for a quarterly interest payment owed to debenture holders until the sale of a building was settled.
Although other finance companies were collapsing, Five Star Finance was adamant "things were fine" and told investors that steps were being taken to ensure the future of the company, the family member said. "I didn't question what the $300,000 was for. There was a temporary squeeze and they needed the money to get through until the settlement happened."
MacDonald and Kirk also invested $200,000 each.
On legal advice, they refused to give the Securities Commission a written guarantee that Five Star Consumer Finance would exist in 12 months' time, as that would make them liable for losses. Within days the company was put into receivership.
