Strategic Finance receiver PwC in final mediation with auditor BDO

Tuesday 1st April 2014

The receiver for Strategic Finance is still at the mediation table with the failed lender's former auditor BDO Spicers in a last-ditch bid to avoid the court-room.

Receiver John Fisk of PwC filed and served papers against BDO over its audit of Strategic's 2007 financial statements, with a statement of defence due next month, Fisk said in a March 31 letter to investors. At the same time, a final mediation hearing is scheduled to take place in the first week of May to try and settle the claim without resorting to court action. If an acceptable deal can't be reached, the receiver will pursue the claim.

"The purpose of the mediation is to attempt to bring the claims against BDO Spicers to a speedier resolution than what would be achieved under a court process," Fisk said. "If the mediation process is not successful, then we would have not lost any time, because the court process is continuing as well."

Last July, PwC's Fisk said the receivers were in talks with a then-unnamed third party over a potential claim, before filing and serving proceedings in December.

Fisk said the receivers are still waiting for the "resolution of some outstanding matters" having effectively reached a settlement with Strategic's former directors, a position also taken by market watchdog, the Financial Markets Authority.

The settlement came after the FMA gave the board the opportunity to respond as it prepared to file civil proceedings against directors including Kerry Finnigan, Graham Jackson, Marc Lindale, Timothy Rich, Denis Thom and David Wolfenden. It dropped its investigation into former director Jock Hobbs, now deceased, in mid-2011 as the extent of his illness became apparent.

Fisk said the directors didn't obtain cover from any directors' and officers' insurance, meaning any settlement will have to come from their personal assets.

"The claims against the directors and auditors are complex. If acceptable settlements can be negotiated, this will be a shorter and less costly process than full-scale court proceedings," he said.

Some 10,000 Strategic investors owed $367.8 million have been repaid 10 cents in the dollar, or $36.8 million, and PwC's Fisk still estimates they will get between 12 percent and 20 percent of their principal back.

Investors will get another update by the end of May.

The FMA's predecessor, the Securities Commission, began investigating Strategic in 2009 when former Act Party MP John Boscawen told Parliament the finance company misrepresented about $68 million worth of debt which it classified as second mortgages when they were effectively a third-ranking security. Former Commerce Minister Simon Power subsequently referred the matter to the regulator.

Strategic was sent to the receivers in March 2010 by trustee Perpetual Trust, ending a moratorium arrangement that had been in place since December 2008.

The finance company missed its milestone repayment in January of that year when it failed to generate enough loan recoveries.

It had tried to get out of trouble in a debt-for-equity swap with South Canterbury Finance that would have given Strategic investors a mix of SCF debentures, shares and preference shares, but Perpetual chose to call in the receivers instead.

BusinessDesk.co.nz

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