Loan link rankled SCF boss
Former South Canterbury Finance chief executive Lachie McLeod asked that a $15 million loan to his family trust not be linked to his name in a company prospectus, the High Court has been told.
The trial of former SCF directors Ed Sullivan, Robert White and McLeod continued yesterday before Justice Paul Heath in the High Court in Timaru.
Former SCF group accountant Terrance Hutton gave the last of his evidence for the defence and faced cross-examination.
In an email to Hutton, McLeod asked about a loan of $15.412m from SCF to his family trust.
"Terry, [I'm] obviously trying to avoid my loan as a related party and need to flesh it out fully. If we can't, the loan is under Seadown Dunvegan Ltd [McLeod's family trust]. That will avoid my name being directly in prospectus which would be wise in this environment."
Hutton responded that the auditors would be interested in the loan.
"There will be other issues though in relation to the interest rate because it is below our cost of funds. I'm pretty certain the auditor will want to see this."
The loan was said to be to allow McLeod to buy shares in Southbury.
Under cross-examination, Hutton was asked if loans to directors needed to be disclosed as there was a risk they would be done on "sweetheart terms".
Hutton agreed and said that was why disclosure was required.
Prospectus 59 was focused on as it was sent to Treasury as part of SCF's application to enter the Crown deposit guarantee scheme.
This led to the biggest charge in the case, as the Crown argues false information was used to get into the scheme, which paid out $1.58 billion when SCF collapsed in 2010.
Hutton told the court on Wednesday that the late chairman Allan Hubbard would use parent company Southbury to buy out related party loans to get them off the books.
Justice Heath asked if the movement of loans was a case of window dressing.
"Is that a fair description to apply to what was going on when Southbury was acquiring loans before balance date and then drawing down past balance date?"
Hutton agreed it was window dressing.
Due to Hubbard's aversion to declaring related party loans, Justice Heath asked Hutton if investors reading the prospectus ever knew the real quality of the loans.
"He [Hubbard] had more control over these entities, he knew the related party, and he saw that as stronger lending than third party lending," Hutton said.
Justice Heath replied, "To put it colloquially, ‘trust me, I know what I'm doing'."
Counsel for the Crown raised concerns Hutton was giving evidence discussing Hubbard.
"Well he's [Hubbard] not available anyway," Justice Heath said.
Later in the day the smell of smoke in an office area prompted an evacuation of the courthouse.
However, it appeared to be a false alarm.
The Timaru Herald