KEY POINTS:
Securities Commission chairwoman Jane Diplock might investigate in what circumstances troubled finance companies - perhaps even Property Finance - should be candidates for statutory management, to buy them time to ride out the international liquidity squeeze.
If Property Finance falls over it may not be the end of the world for its investors - if the receiver takes time to realise the value from the allegedly high quality assets.
The company has $630 million in residential, commercial and reverse mortgage loans under management which it believes will enable it to repay all its liabilities in full.
But there's now a big risk that headlines shouting about yet another finance company collapse will spook investors sufficiently that they will shy away from putting funds into even the more reputable and well-run companies.
Reinvestment rates have dropped markedly across the board since the Bridgecorp collapse. There are exceptions, in the case of the most reputable firms. Allan Hubbard's South Canterbury Finance continues to sport a high 79 per cent reinvestment rate, testimony to investors' long-standing confidence in this firm.
The finance company sector has come in for a lot of bad press after the high-profile Bridgecorp and Nathans Finance collapses.
Many naive investors were sucked in to putting savings in high deposit investments without doing even the most cursory due diligence on some of the marginal firms taking their money.
New Zealanders have about $15 billion invested in the sector, which provides finance for all sorts of endeavours from consumer acquisitions such as motor vehicles and whiteware, through to commercial and residential properties, and, business equipment.
With $1 billion of New Zealanders' savings already in question from the five finance company collapses that have taken place so far, Commerce Minister Lianne Dalziel is right to ask officials to look for the common threads from the collapses.
She wants the rules tightened to improve investor disclosure and ensure the finance firm trustees have the right tools to carry out their obligations, and is exploring ways to get that in place quickly.
If widespread instability does result, the effects will not be limited to finance company investors but will flow through to undermine values as receivers sell assets to pay affected firms' creditors.
Property Finance has already flagged that it may have to go into receivership tomorrow if it can't settle a restructuring deal over the weekend.
Property Finance's NZAX-listed shares were suspended from trading on Friday after its board considered a request from the NZX to all listed finance firms asking if they were disclosing all material information to the market.
It may be Property Finance has already managed to sort through its problems during its restructuring deal negotiations, or that it has managed to get credit lines extended from the banks. Put that to one side and consider the broader issues.
Managing director Daryl Queen maintains that the problems facing the company are not issues with its loans book or obtaining funds for debentures.
He says they relate purely to the difficulties of selling its mortgage-backed securities into the institutional market at a time when global confidence has dried up.
If the international situation is really the sole reason Property Finance is facing difficulties, it would seem sensible for Diplock to ask the registrar of companies to examine the finance company's books and check out the quality of its loans book.
If the registrar finds no porkies are being told, statutory management might be a better weapon to help this at-risk company ride through its problems, rather than see it chalked up as the sixth New Zealand finance company to hit the wall.
Statutory Management is a last-resort weapon for at-risk companies. Most go into receivership or are put into liquidation - if there are solvency issues.
But in exceptional circumstances the commission can recommend the measure to the Minister of Commerce.
This includes when there is a public interest issue at stake.
The public interest test will be uppermost in the minds of some of the more experienced advisers who saw the effects of financial contagion on asset values after receivers went on selling sprees after the 1987 sharemarket crash.
Statutory managers were put in place for Chase Corporation which had extensive property market investments.
Statutory managers have the power to run a failed company to the exclusion of all other interests.
They can suspend payments of the company's debts while they endeavour to work through an orderly disposal of assets. They can also make compromises to reduce liabilities.
This avenue may not turn out to be the right one in Property Finance's case (let's hope it has managed to get its restructuring deal in place) but if a collapse of confidence affects major players, then the commission might want to consider such options.
