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An Auckland investment banker, acquitted of fraud and money laundering charges four years ago, is recalling loans allegedly worth $330 million from more than 100 companies with tax benefits set up by well-heeled New Zealanders.
Last month, John Reid's associated company Totara Investments Ltd appointed McDonald Vague as receiver for 108 investor companies which took part in the Digi-Tech and New Zealand Investments Ltd (NZIL) schemes in mid-1995 and 1997.
The investors, many of them clients of Gosling Chapman, were sold the scheme on the basis of tax savings of up to $330,000 per company.
The scheme involved a $1m loan, with the compounding interest thought to be tax deductible, to cover a loss-of-profits insurance premium.
Directors of the companies include ex-test cricketer and former New Zealand Cricket chief executive Martin Snedden, baby photographer Anne Geddes and her husband Kelvin, property developer and Dragon's Den panelist Paul Webb, some senior partners at Gosling Chapman including Rowan Chapman and Geoff Walker, property rich lister Martyn Reesby, Remuera eye surgeon Peter Ring, and car dealers Colin Crisp and John Murphy, of Camden Motors. Some invested through two companies.
Totara Investments bought the loans for an undisclosed sum and last year started legal proceedings in the High Court against the 121 loss attributing qualifying companies (LAQCs) to recover the money.
Thirteen of the companies have already reached a settlement agreement out of court, but last month Totara moved to have the remaining 108 companies put into receivership.
It used a power of attorney clause as the lender to put a general security agreement over the companies, deemed the investors to be in breach of the loan agreement and appointed receivers to take over the investor companies. That way, Reid says, Totara can retain control over the remaining companies' main asset - their right of action against the professional people who gave advice. Those professionals include eight law firms and accountants Gosling Chapman.
Rowan Chapman told the Herald on Sunday it was not appropriate for him to comment because the case was subject to litigation.
But he says any actions will be "very robustly defended".
For Reid, it's a "straight out business issue". "We were put through a fraud trial, my business was decimated. Do we start anew or do we deal with what we've got?"
He says that he is still on good terms with some of the people involved in the LAQCs.
Auckland barrister Paul Dale, who is acting for most of the companies, scoffs at Reid's claim on the loan money, the existence of which is disputed, and says his clients are vigorously disputing the receivership.
It is an "extraordinary proposition" to use a power of attorney in circumstances where the debt is plainly disputed and "use it to take control of the very companies that Reid is trying to sue". "It is a complete nonsense. It's a tactic which won't succeed."
Gary McDiarmid, chief executive officer of law firm Russell McVeagh, says he is aware of the proceedings.
"As a matter of principle we do not comment on our client's affairs. We are disappointed that we have been added to the proceedings and we will be vigorously defending them."
The IRD disallowed the tax deductions in the 1990s and in 2000 laid a fraud complaint against Reid and three others, former Gosling Chapman partner Peter Russel, tax specialist John Currie and accountant Peter Connolly. Gosling Chapman laid a similar complaint. (They were later acquitted and had $1m costs awarded between the four).
The LAQCs cancelled their contract agreements in 2001, allegedly on legal advice.
It is that legal advice that Reid argues is worth something in terms of third-party claims. Reid won't say how much Totara bought the loans for but concedes it is "considerably less than the face value".
Asked what happened to the cash the investors put in, Reid says: "It went to the parties it was supposed to go to." In the case of Digi-Tech, the money went to the parent company N-Tech, and for the NZIL shares, to its parent company St Lucia. Both N-Tech and St Lucia are linked with Reid's company, Molloy Reid Wong.
Part payments of $40,000 for the $1m insurance premiums went to the Dutch insurance company, he says.
Reid says that the investors will use every type of defence available "including throwing the kitchen sink", in order to try to claim that neither the loan nor the insurance were real and the deal did not happen. "But when you cut through it all, it comes down to simple contractual obligations."
