By Gareth Vaughan
Beleaguered investors in failed property financier Lombard Finance and Investments look set to get back some money from Northern Crest Investments, formerly Mark Bryers' Blue Chip Financial Solutions, but not as much as they might have.
Sydney-based Northern Crest Investments says in an Australian Stock Exchange announcement it has settled a dispute with Lombard's receiver PricewaterhouseCoopers (PwC) and will cough up NZ$1 million over two years starting from this month.
The settlement comes after Northern Crest said in its annual report that its board had decided to no longer consolidate New Zealand subsidiary companies that were in liquidation, or subsidiaries of those companies, which it has no control over. This decision was based on legal advise and a deed of release it signed with Lombard.
As a consequence Northern Crest excluded from its accounts NZ$9.1 million in underwrite receivables and vendor loans, and liabilities worth NZ$12.4 million owed by the subsidiaries to Lombard. See more on Northern Crest in Denise McNabb's story here.
Lombard was tipped into receivership by its trustee Perpetual Trust in April 2008 owing NZ$111 million to 3,900 secured deposit holders after Perpetual decided investors would be better served by a receivership than moratorium.
Initially told they could get back up to 44% of their original investment, secured debenture holders were most recently told their return could be as low as 11% with the taxman potentially creaming off NZ$4.5 million.
A letter to investors from receivers PricewaterhouseCoopers late last month forecast a 15% to 24% return to secured debenture holders on their original investment. However, that forecast recovery range carries the caveat that a potential NZ$4.5 million preferential creditor claim from the Inland Revenue Department (IRD), stemming from a GST audit, could cut returns to Lombard debenture holders to somewhere between 11% and 20%.
PwC's initial forecast was a 21% to 44% recovery for secured debenture holders. A total of 310 capital noteholders with NZ$10.4 million invested in Lombard and 230 subordinated noteholders with NZ$3.7 million, are expected to lose the lot.
Pennies on the dollar
Debenture holders have thus far got back 9.5 cents in the dollar.
John Fisk of PwC says the receiver is holding about NZ$4 million, equivalent to 3.6 cents in the dollar, that can't be paid out to Lombard debenture holders until IRD's potential preferential claim is resolved. Fisk says the taxman has issued a formal information request seeking access to Lombard's electronic documents held by PwC.
"A large number of these documents are subject to claims of confidentiality that are disputed by the IRD," Fisk says. "The IRD has applied to the Wellington District Court for an order to resolve the claims of confidentiality. We will endeavour to ensure that reasonable time frames are set for this process."
He added the PwC's preliminary tax advice was that there was a "very sound base" to deny the IRD's preferential claim. Fisk said PwC could potentially go as far as challenging an IRD claim in the High Court.
Meanwhile, the Securities Commission has issued both criminal and civil proceedings against Lombard directors. Fisk says the criminal case is due in court this October but no date has yet been set for the civil case.
In the civil case four former Lombard directors, including high profile former cabinet minister and ex-Lombard chairman Sir Douglas Graham, face fines of up to NZ$500,000 each after the Securities Commission alleged the failed finance company's prospectus documents and advertisements misled investors. The other three directors charged are Michael Reeves, William Jeffries and Lawrence Bryant.
The watchdog's criminal charges are also against Graham, Reeves, Jeffries and Bryant. These charges relate to the same allegations as the civil proceedings and carry a maximum penalty of five years imprisonment or fines of up to NZ$300,000.
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