Treasury said on Tuesday it was confident the now government-guaranteed FAI Finance was quarantined from any problems with its owner, the Mark Hotchin-controlled Hanover Finance. The rules governing government guarantees for finance companies state that any company in breach of its trust deed on October 12 could not receive a guarantee. Treasury said it had obtained advice from the Reserve Bank and FAI Finance's trustee Perpetual Trust about the connection with Hanover Finance, which is now in moratorium after defaulting on interest payments and capital repayments, therefore breaching its trust deed. "Treasury was satisfied that it was appropriate in the public interest to enter the guarantee with the entity," a spokesman said in an emailed statement. "In addition to the ongoing monitoring of the entity by its trustee and by the Reserve Bank and other regulators, the guarantee deed includes provisions to protect the Crown's interests," he said.

FAI Finance's most recent accounts to the end of June 2008 show it owed investors NZ$18.179 million, which was down from NZ$42.679 million a year ago. FAI Finance is a consumer lender offering personal 'debt consolidation' loans and small business loans. It does not have a prospectus out in the market and was not included in the moratorium announced by Hanover Finance on July 23 last year. * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.