Forum Archive Index - October 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi nick
>
> Team
> 
> There are undoubtedly some good commercial lawyers on this site.  I
> have a question for them regarding the loan by the largest
> shareholder (Crown) to the company (AIR NZ).
> 
> If AIR NZ cannot pay back the loan by the due date as stipulated,
> (and there is no guarantee that they will be able to), then where
> does that leave the Crown as a shareholding entity viz a viz suing
> the company for breach of the loan agreement?  
> 
> I have my own opinion and if someone else can espouse theirs I will
> be greatly appreciative of that.
> 
>
Sorry, I am not a commercial lawyer and I realise that actual events 
have overtaken your question.  In other words the government is 
putting equity into Air New Zealand, not debt.  Still, no-one has 
answered your question so I will throw my hat into the arena.

>From a commercial point of view putting money into a company in the 
form of a loan where there is no guarantee how they will produce the 
profits to repay the interest (without even considering if they can 
pay the capital back) would have been a very risky prospect for the 
New Zealand taxpayer.  If Air NZ didn't repay, suing the company for 
breach of contract whether legally likely or not would be a waste of 
time.  Even if you successfully sue a bankrupt limited 
liability company you will get no money even if you win the case.   
So suing would be pointless. 

Putting taxpayer money in as equity is almost as risky.  It is 
slightly less risky if you consider that Air New Zealand won't be 
faced with a large interest bill because of the money going in.   The 
downside is that the government won't get a tangible return on the 
money tied up as new shares until those shares are (eventually) sold. 
 The upside is that if Air NZ does recover, the government will get 
its share of the increase in value.

Speaking as a private invewstor, I wouldn't be keen on either 
proposal with Air NZ in its current state.   But then I suppose that 
is why the government has become involved!   As a taxpayer I am 
pleased the government have taken the equity option rather than the 
loan. SNOOPY


 
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