FMA almost done in settlement with Strategic Finance directors, receiver chasing BDO

Friday 6th December 2013

The Financial Markets Authority has effectively completed a confidential settlement with the former directors of failed lender Strategic Finance, while the firm's receiver has filed proceedings against auditor BDO Spicers.

Strategic Finance receivers John Fisk and Colin McCloy of PwC have filed and served proceedings against BDO Spicers over its audit of the firm's 2007 financial statements, keeping the FMA in the loop, and are still waiting on certain matters to be completed over its settlement with the directors, according to their latest six-monthly report.

In July, the receivers said they had effectively completed a deal with Strategic's directors over potential breaches of the Companies Act, and entered into talks with a then-unnamed third party over a separate claim.

"FMA's confidential settlement discussions with the directors are also effectively complete, subject to the resolution of certain outstanding matters," the report said.

While the receivers expect to provide a further update to investors by the end of March next year, a spokesman for the FMA said the regulator isn't necessarily on the same timeline.

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.

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.

The receiver has clawed back $47.4 million from the lender's loan book, and is still working five key property loans in Northland, Fiji, Australia and two properties where Strategic has a second mortgage.

The FMA's predecessor, the Securities Commission, began investigating Strategic Finance 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 Hanover-style debt-for-equity swap with South Canterbury Finance that would've 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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