KEY POINTS:
In the same week that the finance company sector, pumped with government guarantee steroids, was reported to be on the rebound with new sales of over $560 million in the three months to the end of December last year, the industry's messy past also leaked into the headlines.
The worst news belonged to the erstwhile sponsor of the TV One News, Capital+Merchant, with that company's receivers indicating debenture investors would probably be looking at a zero per cent return - not good even by today's standards.
But while ordinary investors can now say their final farewells to their what-seemed-like-a-good- idea-at-the-time investments, other parties will not be in mourning. Such as the Capital+Merchant related parties who blew about 40 per cent (almost $80 million) of the loans, mostly on property deals, many of which have now gone sour. About half of those related party loans were recently uncovered by the firm's receiver Grant Thornton, which said in its latest report that: "Various matters in relation to these loans have been highlighted to the relevant authorities and are currently under investigation."
Grant Thornton was not optimistic about recovering much from the related parties - that is, companies associated with Capital+Merchant directors Owen Tallentire, Wayne Douglas and Neal Nicholls.
Of the money that Grant Thornton has squeezed out of Capital+Merchant, most has been repaid to the big boys who had a 'prior charge' on the cash - namely some banks and the US vulture fund Fortress, which has already received over $20 million from Capital+Merchant Finance (and is due about $3 million or so). Fortress also sit at the head of the queue at sister company Capital+Merchant Investments, where it has a $50 million 'prior charge' - ahead of the little people at Capital+Merchant Finance.
This doesn't sound fair and it isn't. But it is legal. What was never made clear to debenture investors during the industry's bull run was just how far down the repayment list they were in event of an emergency.
It was also difficult to let them know. I remember once ghost-writing a puff piece on debentures for an Australian publication where I highlighted, only briefly, the essentially lower-class status of debenture-holders. I believe the sponsor had the paragraph deleted.
David Chaplin
Pictured above: Partygoers at The Fire Place in Whitianga on New Year's Eve, 2007. Photo by Sarah Ivey.
