Read Grant Thornton's statement below:
Despite good progress with the realisation of assets, timing of future returns to Aorangi investors is unclear because of uncertainty around ownership of approximately $60 million of assets in Aorangi Securities Ltd. In their seventh report to investors, the statutory managers said that they continue to finalise issues and stabilise the complex farming interests associated with Mr and Mrs Hubbard and that they have restructured and significantly improved the financial reporting and governance of a number of associated farming interests.
However, in the short term, the complexity of third party loans and investments recorded by Aorangi Securities to businesses related to Mr Hubbard means the schedule and amount to be paid to investors is unclear.
The statutory managers expect to distribute 8c in the dollar to Aorangi investors in July 2011, but this is dependent on the repayment of a refinancing loan.
Hubbard Management Funds (HMF) held its value over the last quarter, while progress was made moving investments into more blue chip entities.
In Aorangi Securities “we are making progress on many fronts but several large issues must be finalised to enable us to move forward”. The statutory managers report that after engagement with various interested and affected stakeholders key decisions made have resulted in some stabilisation.
“These restructures enable the farming interests to be packaged in a marketable form to maximise realisable value. We have sold interests in a number of farms, at, or exceeding valuation, for a total consideration in excess of $14 million.”
The statutory managers are expecting to receive the sale proceeds from farm interests of approximately $10 million about now.
“We would expect additional realisations in the next three months to exceed $20 million. Presuming the beneficial ownership of the interests can be determined, some or all of those realisations should be available for distribution to Aorangi investors.”
The distribution of 8c in the dollar is less than expected, and reflects the difficulty the statutory managers continue to have in collecting loans and sorting out ownership issues relating to various farms.
“Investors will have a long wait for repayment on investments because assets purported to have been transferred to Aorangi may still be owned by Mr and Mrs Hubbard”.
If it is established that the Hubbard interests remain in the ownership of Mr & Mrs Hubbard, those assets will not be directly available to Aorangi. There could instead be a claim by Aorangi as lender against Mr & Mrs Hubbard as borrowers from Aorangi at a value of close to $60 million.
“With the financial positions of Mr and Mrs Hubbard being uncertain, there is potential for a loss to be incurred by Aorangi investors, who will rank with the other creditors of Mr and Mrs Hubbard,” the report said.
The statutory managers are challenging an arrangement that Mr Hubbard purported to implement with South Canterbury Finance which broadly involved Mr Hubbard introducing assets indirectly for the benefit of South Canterbury Finance in return for $110 million of bad debts in South Canterbury Finance. The return from these bad debt loans since the commencement of statutory management is approximately $500,000. The security given to South Canterbury Finance was over the Hubbards’ ownership interests in 21 farms.
It has been agreed with South Canterbury Finance that the courts be asked to provide directions as to who is the beneficial owner of these assets.
“A further complication on the ownership is the position of the other owners of the 21 farms who were not aware of the action taken by Mr and Mrs Hubbard in unilaterally transferring their interests for the benefit of South Canterbury Finance. This was done without reference to the other parties even though (in many instances) there are agreed arrangements in place, that is partnership agreements and company constitutions, that require shareholder approval before shares are transferred.”
Aorangi has an investment of approximately $23 million in Te Tua. Since their last report statutory managers have continued to make progress in negotiating and collecting amounts due from borrowers of Te Tua. As at 31 May 2011 they had collected $2,384,235 in loan repayments since 20 June 2010. “We are taking legal action to recover loans where borrowers are either proving difficult to contact or are refusing to make repayments.”
The statutory managers said that there are 29 loans that are up to date and making regular repayments, however, there are nine loans where no recovery is expected.
Hubbard Management Funds
As at 31 May 2011 the HMF value stood at $49.3 million after adjustments for assets subject to third party claims.
“In the last quarter the value of HMF has overall remained reasonably stable but the gains in March and April have been countered by a number of factors including a reduction in value of investments in Olympus Pacific and Scales Corporation (to the value accepted by the South Canterbury Finance receivers for 80% of the company) and the impact of the conversion rate between the New Zealand and Australian dollar.
Additionally, our research and visits to certain unlisted entities have resulted in reducing one valuation by over $1 million.
“On the positive side, early indications are that the venture capital and private equity funds have generally had a good financial year with improved valuations. Mainfreight and Ryman Holdings have also performed well over the period.”
The statutory managers are actively managing the portfolio and progressively reorganising the investment holdings to reduce volatility. This will take time as any significant rapid changes caused by the sale of large numbers of shares by HMF will impact adversely on the portfolio.
“Some investors have asked if we will produce individual investor statements as Mr Hubbard has done in the past. As noted in previous reports it appears the statements issued to investors have contained errors with, potentially, a $31 million dollar shortfall of assets when compared with all investor statements as at 31 March 2010.
“We will not be in a position to advise each investor of their tax position regarding the fund until we have directions from the Court as to the portion of HMF’s assets each investor is entitled to.”
“Despite the significant issues we have found, and the quality of the records, we still expect to file the papers with the Court by the end of September. The Court will then schedule a hearing which is unlikely to be before 2012”.
The statutory managers have indicated that they will need to take directions from the Court before making an interim distribution.
The cost of the total administration to the end of May 2011 for Aorangi, Te Tua Trust and HMF is $4.9 million (GST inclusive) made up of $2.87 million (Grant Thornton), $1.15 million (Legal), $276,303 (Other Disbursements) and $609,477 (GST).
“There has been some confusion over the payment of Mr and Mrs Hubbard’s legal fees. We approached the Courts for guidance on whether it was appropriate for us to pay the legal costs, and if so, what money should be used. The Courts came back saying that costs should be paid, but it was neither the liability of the statutory managers or the Government, and that it should come from Mr and Mrs Hubbard’s personal assets. We are following the Court’s direction,” say the statutory managers.
No further comment will be provided. The next report will be the end of September 2011.