KEY POINTS:
The day after Kim Spencer was declared too broke to pay millions of dollars owed to his creditors, he winged his way off on an overseas holiday.
Three days after Bridgecorp collapsed owing $459 million to secured creditors, the company's chief executive, Rod Petricevic, gave his family trust his Porsche 911.
The trust, of course, was happy for Petricevic to stay behind the wheel. Phil Taylor reports on how they do it and what can be done to access money for creditors.
Rod Petricevic's latest evasive tactic to avoid parting with his cherished vehicle, despite massive creditor issues, is not his first.
It mirrors 1989 when Petricevic's lawyer claimed the failed merchant banker was not trying to sell his Mercedes-Benz to evade a $10 million debt he owed Euro-National Corporation, the company he floated and which collapsed due to questionable deals and the sharemarket crash.
Bridgecorp, which he launched in 1993, is the other monumental failure which bookends his career.
Kim Spencer, too, is a second-time business failure.
Both have palatial family homes. Petricevic's, at 253 Remuera Road, has a 2005 valuation of $4.1 million; Spencer's, at 509 Hibiscus Coast Highway on the Hatfield Beach clifftops, has unimpeded coastal views and is worth $3.75 million.
Spencer's property is currently occupied by a man who has made an unconditional offer to buy for that price, while the courts have ordered that Spencer reside at a Wellsford address but more of that later.
Though they live the lives of men of substance, little may be available to creditors.
The homes of both men are owned by their family trusts. Petricevic has told authorities that the chattels within his home are owned by his wife _ occupation as per the 2008 electoral role "housewife".
Both men are facing criminal charges. Petricevic (along with Bridgecorp's financial director Rob Roest) is accused of Companies Act and Securities Act charges _ of concealing the truth about the company's finances _ which carry maximums of five years' jail or a $200,000 fine.
Spencer faces two charges under the Insolvency Act which carries a maximum jail term of one year. If they end up in prison (Petricevic is yet to plead to his charges; Spencer has pleaded guilty) and are labelled crooks, it makes no difference to the ability of the Official Assignee (the public official who administers bankrupts' affairs) or liquidators to claim assets.
Family Trusts are commonly used to legally separate ownership of assets, such as houses and vehicles from the person.
The test is whether the trusts are valid, ie legal, and that assets have been transferred to the trust for proper reason and not, for example, for the express purpose of putting them beyond reach of creditors.
"That's the thing that bugs the public," says Auckland Official Assignee David Harte. "A trust is its own entity in law. A trust can own an asset but it is allowed to let people use it, so the public sometimes see bankrupts driving around in cars belonging to the trust."
There is nothing the OA can do about that. What he can do is investigate the formation of the trusts and look at whether the bankrupt has transferred any assets into that trust. "Say, for example, a car. You can't just give the trust a car because the trust will owe that person back the fair value of the car. If the trust hasn't paid the bankrupt then the trust will owe the OA [as trustee of the bankrupt's affairs] that money and we will make a demand on the trust for the fair value. Same with a house."
Each year a person can gift a trust $27,000, which gradually gifts the debt away, but the OA can make claim on the portion not yet gifted.
There are provisions, too, to void the first year's gifting if the bankrupt was insolvent at the time the gift was made, or it can be shown it was designed to put it out of reach of creditors.
Recent case law gives the OA powers to review gifts to the trust going back two years before bankruptcy.
The signature item for this process regarding Petricevic's bankruptcy will be his $120,000 Porsche.
Petricevic may personally owe creditors $7.3 million. He was bankrupted on the petition of Bridgecorp's receivers to whom he owes $666,186 for a personal tax bill paid by the company. The receivers are also claiming for $2.7 million they say was excessive earnings paid to Petricevic by Bridgecorp. Another creditor is Hanover Finance, regarding a $4m loan it made to Bridgecorp which Petricevic personally guaranteed.
Bridgecorp paid Petricevic $4 million in the three years prior to Bridgecorp's collapse in July last year and had taken $1.6 million in advances from his family trust since March 2000, yet Petricevic claims to be broke and to owe Rodney Michael Petricevic Family Trust $5 million.
Bridgecorp's receiver, Colin McCloy, of PricewaterhouseCoopers and Harte have no idea where Petricevic's substantial earnings have gone.
McCloy hopes the answer will emerge in the OA's investigation of Petricevic's personal finances. Harte says Petricevic had provided some information and had indicated he would co-operate. But the OA doesn't yet know where the millions Bridgecorp paid Petricevic have gone. "That is part of the information we are seeking full disclosure of."
Some may have gone into home improvements ($2 million according to rating valuation data in the six years to July 2005).
Bankrupts are required by law to fully co-operate and to swear a declaration that they have. Failure to do so can result in a public examination. Continued failure to co-operate can lead to the bankrupt being held in contempt of court and jailed.
A co-operative bankrupt makes the process easier but can't be relied on, particularly in complex cases where the honesty of the bankrupt has been called into question (as in the cases of Petricevic and Spencer).
The OA's staff search property and asset registers, and banks are asked to scan for accounts associated with the bankrupt, which can provide leads to money sent overseas. "We use any source we can looking to find assets that may not have been disclosed," says Harte, who notes that creditors are often a good source of leads.
The Insolvency Act enables the OA to demand not only the bankrupt but the bankrupt's wife, solicitor, accountant and other relevant persons to provide any document relating to potential assets of the bankrupt.
But that doesn't make it plain sailing when a bankrupt is determined not to co-operate, which appears to be the case with the Spencers.
Kim Spencer was adjudged bankrupt on 1 August 2007, disqualifying him from managing companies. On the same day his wife, Susan Spencer, was appointed a director of a long list of property companies in place of her husband.
The OA recognises it is not unknown for such transfers to be a sham, with the bankrupt continuing to manage the businesses.
Susan Spencer left New Zealand shortly before she was adjudged bankrupt on July 1 and hasn't returned. Kim Spencer was arrested at Auckland Airport on 18 June attempting to "quit New Zealand without first having obtained the consent of the Official Assignee".
The Herald has learned that authorities suspect Spencer was planning to join his wife in Australia and that he had been attempting to sell up and transfer assets out of the reach of creditors.
After Spencer's arrest, the OA discovered he had made an earlier trip and had sold his house. Herald inquiries show the sale is for $3.75 million. The buyer, who has convictions for fraud (1999) and acting as a manager while prohibited (2004), has moved into the house. He told the Herald he has yet to pay and that the OA had been in contact.
The Spencers have not co-operated with the OA. Susan Spencer had not been in contact and was, says Harte, "opening herself up to potentially being prosecuted". The matter would not be serious enough to warrant extradition but she could be arrested if she returned to New Zealand.
Kim Spencer has pleaded guilty to quitting New Zealand without consent and failing to notify the OA of his change of address. He is due to be sentenced on September 22.
A statement from the OA office filed in court as part of the prosecution notes that he had been "completely unco-operative... refused to answer questions... and provided only a few documents".
Documents were finally obtained, after many months and recourse to the courts. "Due to the lack of co-operation from Spencer, the Official Assignee foresees that the estate of Spencer will only be finalised in a number of years," the statement by case officer Karen De Swardt says.
Susan Spencer's creditors so far total $663,000 but the OA noted the final total may be more and that her and her husband's bankruptcy are "very related".
The current estimate of Kim Spencer's creditors is $4.4 million but that too may be light given his refusal to co-operate.
The Herald understands the OA's office is working to identify and seize assets associated with the Spencers in Australia.
Harte says privacy laws prevent him discussing details but he confirms his office is aware Susan Spencer is in Australia, that they believe they know where and are trying to contact her.
"Locating assets overseas is a difficult business. Like police we are reliant on people knowing about it and telling us."
One who might fall into that category is Philip Parker, who says Spencer owes him $9.5 million due to alleged misrepresentations made in a property deal. Parker told the Herald that inquiries made on his behalf indicate that Spencer has property in Australia _ including motels _ and in Fiji.
Parker is listed on Spencer's bankrupt estate as a contingent liability because of a lawsuit he has against Spencer.
If the Spencers do own motels, they may have bought them with money Kim Spencer obtained from a cousin, Peter Davison, and hid from the OA during his first bankruptcy in 1997.
Back then, Spencer was buying farms and converting them to dairying. "Little did I know that the Official Assignee was already moving against him [to file for bankruptcy]," Davison said in a sworn statement. "He was technically bankrupt but was getting in money and salting it away."
Davison last year told the Herald that when he asked Spencer to repay some of about $500,000 he owed, Spencer "told me he'd shifted all the money overseas and invested in motels in Queensland and he had to be very quiet about it because he was bankrupt".
The OA tried at the time to retrieve some $260,000 of this money with partial success. Susan Spencer was ordered to repay $53,000 (spent on a boat) which Spencer gifted her during his bankruptcy period.
But the trail on the remaining $207,000 went cold and despite the judge describing Susan Spencer as unreliable and Kim Spencer as having "little sense of fiscal or moral responsibility" the OA had not been able to show where the money had gone.
Kim Spencer was released from that bankruptcy in 2000. Soon after, he embarked on a multimillion-dollar career buying and selling coastal farms.
Bankrupts are banned from managing companies for the three-year term of their bankruptcy, a period which begins once the OA is satisfied they have fully co-operated. But the Registrar of Companies has the power to ban people for a further five years.
In making those decisions the registrar takes advice from the OA. Harte says such a ban will be "seriously considered" in the cases of Spencer and Petricevic.
