KEY POINTS:
For those who thought bad news in the finance company sector was behind us, there was some sobering news this week.
Yesterday MFS Pacific Finance confirmed it had defaulted on payments leaving investors with little certainty about when they'll see their money.
On Thursday receivers of collapsed Capital+Merchant Finance announced secured debenture holders are likely to recover just 59 per cent of their investments, and that will take time.
The finance company was placed in receivership in November, owing $190 million to 7000 investors.
In under two years, 14 companies have collapsed or defaulted, affecting over $1.5 billion. The amount investors receive back will vary from probably none for Bridgecorp investors - the biggest collapse with 18,000 investors owed $500 million - to all.
Even the latter will probably mean investors dip out on interest payments.
C+M receiver Grant Thornton said realisations from the assets depended on certain events occurring, but it was clear there would not be a full recovery to secured debenture holders.
Most loans were for property development projects in various stages of completion. Interest was accruing and capitalising these loan balances.
The report noted C+M's collapse was precipitated by a drastic fall in its re-investment level to 10 to 20 per cent compared with 50 per cent a year previously, after publicity about other company collapses.
Unsuccessful attempts had also been made to sell some properties for which C+M held securities. Prospects of selling at required values on the open market had diminished, causing cashflow problems.
C+M directors tried to prevent the receivers getting into its premises and its directors sought an injunction to restrain Grant Thornton from taking further steps until a court order was obtained.
That happened on November 29, and in his judgment, Justice Rhys Harrison commented that on a realistic assessment of its financial position, C+M Finance should not have been receiving any public money in its last months, the receivers' report said.
Whether that type of comment helps or hinders the hundreds of investors who are considering legal action against financial advisers is unclear.
Lawyer Andrew Hooker is acting for 80 people who were mostly advised to invest sums between $20,000 and $1 million each in Bridgecorp, led by led by tarnished former 1980s high-flyer Rod Petricevic. Most were retired and some have lost all their savings.
He told Radio New Zealand that while there was no precedent for suing financial advisers, other professionals such as lawyers, accountants, architects, dentists and engineers had been sued.
"If you give someone advice, then the people rely on that advice. You have an obligation to make sure that you give them full and proper advice," he said.
Sharebroker Chris Lee said it was clear some advice was incompetent.
"In countries overseas, people would go to jail over that. New Zealand has been too soft. Often we are too forgiving and the only way to clear this up isn't law - it's got nothing to do with changing the rules - actually to put people in jail and make them pay for dishonest or utterly incompetent advice."
A problem for those suing is that although some advisers boast they have insurance, it is limited to $20 million, hardly enough in the case of Bridgecorp.
"It puts a big question about how much will be won through the courts," Mr Lee said.
Suzanne Edmonds, of Exposing Unacceptable Financial Advice, tells people to be wary of putting good money after bad.
- NZPA
