In the wake of the collapse into receivership of South Canterbury Finance, Treasury says taxpayers' will now foot the bill for all depositors of Crown guaranteed finance companies that default, including those that have already defaulted, regardless of any previous eligibility criteria in place for the Retail Deposit Guarantee Scheme.
(Update adds line on Treasury not disclosing what the extra cost to the taxpayer will be).
Acting Secretary to The Treasury Gabriel Makhlouf said the scale and complexity involved with repaying South Canterbury Finance depositors altered the costs involved in running the guarantee scheme.
"Repaying all depositors of all guaranteed companies that default will save taxpayers from having to pay ongoing interest that otherwise would have accrued as thousands of claims were assessed, processed and paid," said Makhlouf.
“Criteria relating to citizenship and tax residency will no longer apply and depositors will not be assessed using those criteria. The criteria for being repaid is that you are on the register of debt securities at the date of default,” Makhlouf added.
The decision applies for defaults by approved institution from the start of the current Retail Deposit Guarantee Scheme in October 2008 until it ends on October 12, 2010.
The following eight Crown guaranteed institutions have defaulted: South Canterbury Finance, Allied Nationwide Finance, Mutual Finance, Viaduct Capital, Vision Securities, Strata Finance, and Mascot Finance.
"The Treasury will publish details in due course about the process for repaying previously ineligible depositors," Makhlouf said.
Spokesman Angus Barclay said Treasury wouldn't disclose at this point how much paying previously ineligible investors in already failed companies would cost the taxpayer.
Debt securities eligible for repayment include: call deposits, term deposits, non-guaranteed deposits, debentures, and bonds. Equity securities such as ordinary shares and preference shares remain ineligible for repayment under the Crown guarantee.
This decision means repayments will now be made to some depositors who may not have previously been eligible for repayment.
"Eligibility criteria that include citizenship and tax residency will continue to apply in the event of a default after October 12, 2010 by entities approved for the extension to the Guarantee scheme. The extension to the Retail Deposit Guarantee Scheme runs from October 12, 2010 to December 31, 2011."