Unravelling Hubbard entities becoming a nightmare

Many borrowers thought their loan was with Allan Hubbard, not Aorangi. Photo / Supplied

Details of the third report released by the statutory managers of Allan and Jean Hubbard, Aorangi Securities and 12 associated entities show just how much of a nightmare it is to track down investors' money.

Grant Thornton's Richard Simpson and Trevor Thornton were appointed to manage Aorangi and seven trusts on June 20 after an anonymous letter of complaint to the Securities Commission led the Government to step in. Since then three other companies and two trusts have been added to their list.

But details are only beginning to emerge now on how complicated and inter-connected the entities are.

A closer look at Aorangi has revealed many of the farm businesses who have loans believed they were personally with Allan Hubbard not Aorangi. Te Tua Charitable Trust, which provided interest free loans to start-up farmers and businesses, owes Aorangi $25 million.

"We continue to encounter difficulties with the collection of loans and have insufficient records to allow us to contact some borrowers that have been advanced finds by Te Tua. Some borrowers are located overseas.We are proposing to use the services of a private investigator to assist with the tracing of these borrowers."

While four loans have been repaid in full and two others are expected to follow suit, other borrowers can not repay the loans because they are in liquidation or are being chased by other lenders.

The managers say some of the loans have been incorrectly credited with repayments and some are so complex they require legal advice.

"For example, we have found issues where the full loan may not be repaid because of a verbal agreement reached by Mr Hubbard and the borrower."

There were also issues where repayments were being withheld by borrowers because they are also investors in either Aorangi or Hubbard Management Funds.

In another case the managers had received rental payment on a tenanted property for the past two months but it did not appear that rent had been paid for the previous 12 years.

"The work we have done to date confirms that there is little documentation on most loans, with little or no follow up with borrowers who did not meet their obligations. We consider that Te Tua may be able to repay less than 50 per cent of Aorangi's investment."

Aorangi investors, of which there are around 400, have been told they might get a payment of 3c in the dollar this month. The managers say they may also be able to sell a number of assets which could allow another 20c in the dollar to be repaid by the middle of 2011.

The report also gives further insight in the investments owned by Hubbard Management Funds. Independent investment advice to the managers found the portfolio had been constructed on a high-risk-high return philosophy without a set plan.

"Our investment advisers have advised us that the portfolio appears to have been assembled on an ad hoc basis."

It was valued at $42.5 million at June 20 and had since risen to $49 million on market and foreign exchange gains.

Of the portfolio 24 per cent is invested in unlisted entities which generate little or no income. Some of the investments had little or no value while others appeared reasonable but may be difficult to sell because they were not listed. The rest was made up of listed Australian and New Zealand securities - a large proportion of which was in smaller listed companies.

The report also reveals $19.6 million in related party investments much of which is in either South Canterbury Finance or Southbury Group securities.

South Canterbury Finance, which is not in statutory management, went into receivership at the end of August with the Government paying out $1.6 billion to the trustee of the deposit holders covered by the deposit guarantee scheme.

Hubbard Management Funds will receive $590,000 of that money because of its investment in South Canterbury Finance bonds and Southbury Group notes.

But distributions to HMF investors cannot occur until the managers have received either a court direction or found a viable alternative because the nature of the fund is not clear and guidance is needed on the appropriate method of distribution.

"Although investors may consider they had an individualised portfolio, features of the underlying management of HMF suggest investors' funds were pooled with others."