Indemnity for borrower queried

EMMA BAILEY
Last updated 05:00 16/08/2014

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A judge has queried why South Canterbury Finance (SCF) would give a borrower indemnity against any loss, after the borrower was loaned $6.9 million.

The trial of former SCF directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod continued yesterday in the High Court at Timaru before Justice Paul Heath.

It will sit again today, starting at 9am, with a final day on Monday.

The last week of the defence's closing has attracted its largest number of supporters.

In 2006, then chairman Allan Hubbard owned 44 per cent of Wool Services. He had been offered a further 19 per cent but buying it would have triggered takeover regulations.

Sullivan approached his friend and client of 40 years, Ross Lund, to be a director. Lund agreed as long as Sullivan arranged the finance and he (Lund) did not have to personally guarantee the borrowings.

SCF then loaned Woolpak $6.9 million. Lund requested a document outlining his indemnity.

The Crown has argued Lund was a puppet director and Sullivan really controlled Woolpak, making it a related party.

Justice Heath asked defence counsel Pip Hall QC why a finance company would give its borrower an indemnity.

"It just does not seem commercial. Why would a borrower determine the terms? I am looking for a commercial reason to do that, that is not associated with the possibility the shares were being held for someone else," the judge said.

"The fact of indemnity does not bring the Crown home (on the charge) but it is a piece of circumstantial evidence."

Hall said, "your honour should not just jump to the conclusion Mr Lund held the shares for Mr Hubbard because of the indemnity".

Hall said Lund had given evidence there was no agreement between him and Mr Hubbard.

"Mr Lund was a man of substance and he repeatedly indicated that he owned the shares independently; it was meant to be a short term arrangement."

A loan of $12m to Dairy Holdings chairman Colin Armer was also covered off yesterday. If the loan was to DHL directly it would have taken SCF exposure to more than 35 per cent, a breach of the deed, according to the Crown.

So instead, a loan was advanced to Armer personally for $12m.

McLeod faces a charge of breaching the trust deed, and Sullivan faces one of making a false statement in a prospectus by not declaring it as a related party.

Hall argued the loan was most definitely to Armer as he was personally culpable.

"Mr Armer was not merely a puppet acting as an intermediary for appearances sake only with no actual liability.

"Mr Armer was pursued by the receivers (after SCF failed) and settled the outstanding debt of $3m."

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Footnote: In yesterday's SCF story we referred to defence counsel Pip Squire QC. This should have been Pip Hall QC.

Man put in custody for contempt of court

A Dunedin man was taken into custody for contempt of court during the South Canterbury Finance trial yesterday.

Following the afternoon adjournment Trevor Hay filed a habeas corpus application which has to be heard straight away by the court.

Habeas corpus is a writ requiring a person under arrest to be brought before a judge or into court, to secure the person's release, unless lawful grounds are shown for their detention. In latin habeas corpus means "you shall have the body [in court]".

Hay claimed he was being unlawfully detained because he could not lawfully go on to his land due to a decision made by the court.

Justice Paul Heath asked him if he had arrived at court of his own free will, to which he replied yes.

"Can you leave this court of your own free will?" The judge asked to which Hay also replied yes. "Well then you are not detained and this application is dismissed."

Hay did not accept the dismissal and continued to argue with the judge asking if he had heard of (the founding constitutional law document) the Magna Carta.

"You are not detained. You are free to go and if you do not you will be taken into custody for contempt of court," the judge warned.

Hay continued to argue and was taken into custody by the registrar and security guard.

Kerry Cook, who is part of Edward Sullivan's legal team, was asked to represent Hay, with the judge saying, "I have no desire to keep the man in custody any longer. Given where we are today, if he will simply leave that would suit me."

Hay was brought back before the court and apologised to the judge, stating that he was frustrated with the system.

"I accept your apology and you may go," the judge said.

- The Timaru Herald

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