Panic sends another company to the wall

Investor panic led to the latest $19 million finance company collapse, with a sudden run on cash in just two days forcing Nelson firm LDC Finance to close.

Yesterday LDC Finance became the fourth finance company to fail in the past two weeks and the eighth since May last year, involving more than $1.1 billion in investors' money.

Directors said LDC had suffered an "unsustainable level of demand for repayment of on-call deposits" and could not continue trading given the issues facing the finance sector.

LDC owes 995 investors, mainly in Nelson, $19.3 million against a loan book and other assets of $23.8 million - slightly less than the first firm to collapse, National Finance 2000.

Directors were confident that all investors would get their money back.

Company trustee Perpetual Trust called in the receivers, Malcolm Hollis and John Fisk of PricewaterhouseCoopers, after depositors began demanding their money back on Friday. Demands escalated on Monday.

Mr Hollis said repayment of all investors' deposits had been frozen, and borrowers were required to continue to make repayments as normal.

"There's been no real explanation as to what caused the sudden run on the funds in the last few days," Mr Hollis told Radio New Zealand.

"But I guess if you look at the wider industry, there is a great deal of nervousness around from people who have got money in these sort of businesses, and there is a strong flight to the bigger banks and institutions."

LDC investor Jo Greig, of Nelson, said she was disappointed by the behaviour of fellow investors. She and her husband Wayne have $25,000 in an unsecured deposit with LDC.

"If everyone had kept their cool and kept their money there, they would have been fine. They are a good company."

The receivership had come as a big surprise - "... it was the last one I was expecting to hear", she said.

The couple both still work at age 67 and have savings spread throughout other investments.

While they could not afford to lose $25,000, it would just mean there was less to draw on for retirement.

The pair had been impressed with LDC's prospectus and the company stood out as a "low-risk outfit to be with".

Perpetual Trust chief executive Louise Edwards said LDC was fundamentally a good company with good assets.

Its lending was broadly spread, including property and business as well as a small amount of personal and consumer finance.

The longest loan was for about three years.

LDC had an unusually high number of on-call depositors, accounting for $7.9 million of its funding from 576 investors.

Ms Edwards was not aware of any other finance company that had a similarly heavy exposure to on-call deposits.

Government investor watchdog the Securities Commission again wrote to finance companies yesterday, warning them to stop trading if they struck financial difficulties, and protect investors.

The LDC receivers would try to sell the business as part of the options being considered, Mr Hollis said. If it could not be sold, the plan was to make quarterly payouts to secured debenture holders.

Unsecured depositors and unsecured creditors would receive payment only once the secured depositors had been repaid in full.

- © Fairfax NZ News