The receivership of Equitable Mortgages, which had the bulk of its retail deposits covered by the Crown retail deposit guarantee scheme, will leave the taxpayer short changed despite the prediction by the property lender's CEO at the time of its receivership that this shouldn't happen the receivership was managed properly.
The second receivers' report, from KordaMentha's Grant Graham and Brendon Gibson, says: "Based on our preliminary estimates, we believe it is extremely unlikely there will be a return to unsecured creditors and we expect there to be a shortfall owing to investors and the Crown."
About 6,000 secured debentureholders were owed NZ$192.3 million when the receivers' were called in with Equitable, which provided first ranking loans for commercial, industrial and residential property, having NZ$188.4 million worth of loans outstanding, Equitable's then CEO Peter Thomas, now head of property finance at the BNZ, told interest.co.nz last November that if the receivership was managed correctly, the taxpayer shouldn’t be left short changed.
“To give you two extremes the receiver could decide to sell all the assets tomorrow and if that was the case there would be a significant shortfall,” Thomas said back then. “However, if he took five years, then there wouldn’t be a shortfall and there would be an opportunity for some equity to be retained.”
Thomas said somewhere in the middle of those two scenarios was likely to be how the receivership played out, and did warn that a further deterioration in the property market could make the outcome worse.
Treasury says it has paid out about NZ$140 million to about 2,950 Equitable depositors under the Crown guarantee, representing about 78% of depositors and amounts owing. In their report Graham and Gibson say they have repaid NZ$35 million to investors and the Crown, or about 18% of the money owed. They say it won't be possible to recover the full NZ$188.4 million worth of loans outstanding.
One entity that owes Equitable money is Terry Serepisos' in-receivership firm 79 Manners Street Ltd, which owes NZ$14.4 million.
The receivers' report notes NZ$32.5 million cash in the bank at the date of the receivers' appointment, almost NZ$6.2 million worth of loans have been repaid and NZ$1.67 million of loan interest received. The receivers' have been paid NZ$733,851.67 to date.
Board had wanted 'an orderly wind up'
Last November Equitable, part of Equitable Group owned by the rich lister Spencer family headed by Christopher Spencer, said it had asked its trustee, Trustees Executors, to appoint receivers. Thomas said at the time that Equitable’s board and management had wanted to conduct an orderly wind up of the business rather than place the company in receivership. But, unfortunately Thomas said, under the Crown guarantee there was no mechanism for an orderly withdrawal.
Equitable had told government officials there was no immediate need for a cheque to be written and that Equitable’s liquidity position could easily have seen it through to June this year. What the company wanted to do was cease taking deposits, withdraw its prospectus and meet payments in full as and when they fell due.
“However the Treasury’s advice was ‘we understand what you want to do and we’re very supportive of that. However, we’ve only got one mechanism and either you’re in the current (Crown) guarantee or you’re out of it,” Thomas said last November.
“So in the best interests of all stakeholders we had no other option but to ask the trustee to appoint a receiver.”
Thomas also said in November that the business was solvent and didn’t have a liquidity issue.
Deloitte's Rod Pardington and David Levin were initially appointed Equitable's receivers but replaced by Graham and Gibson on December 17. Pardington and Levin said it had come to their attention that continuing as Equitable's receiver might "give rise to audit independence issues" for Deloitte.
"The relevant issues giving rise to this were not known and, given their nature, could not have been known by us until this was communicated after our appointment," Pardington and Levin said.
"We wished to take a conservative view on this matter for the purposes of the auditor independence rules to ensure that we are well within the boundaries of those rules. This gave us no choice but to resign our receivership role."