Reserve Bank wanted SC Finance put 'on notice'

Photo / Sarah Ivey

South Canterbury Finance was accused of breaching conditions of the Government's deposit guarantee scheme within months of signing up to it, new documents show.

The Reserve Bank recommended putting the failed finance company "on notice" after it discovered large transactions carried out in January 2009 had gone unreported.

Its letter to Treasury said the transfer of $89.6 million of loans from South Canterbury to its parent company Southbury in January was in breach of the deposit guarantee scheme contract signed on November 19, 2008.

South Canterbury was required to get permission from Treasury for any transfer of assets in excess of $21.36 million, the Reserve Bank said.

Treasury had not been informed of the transaction.

Another $90 million loan to a related party also came under fire.

Despite the contract making it clear similar transactions above the value of $22.3 million needed consent, there was no independent certification from the Crown, the Reserve Bank said.

"No consent was sought by SCF from the Crown for this transaction to take place, nor was there any independent certification from an expert approved by the Crown to show that the transaction was at arm's length."

Guarantee scheme team leader John Park wrote to South Canterbury in the wake of the revelations requesting information on the transactions within two weeks.

He notified the company that the Government could pull out of the guarantee scheme for similar offences.

"The Crown views clause 6.2 as being very important. You will appreciate that breaches of clause 6.2 can result in withdrawal of the Crown Guarantee under clause 6.9."