Capital + Merchant collapses, $167m owed

WOUND UP: Capital + Merchant has collapsed owing debenture holders nearly $167 million.
WOUND UP: Capital + Merchant has collapsed owing debenture holders nearly $167 million.

Crippled finance company Capital + Merchant collapsed into liquidation this week, owing debenture holders nearly $167 million.

The Official Assignee in Hamilton has been appointed liquidator.

Capital + Merchant was one of the first finance companies to be put in receivership. Two receivers were appointed in November 2007  Grant Thornton to act for its main lender, Fortress, and KordaMentha, appointed by Perpetual Trustee, to look after the interests of Capital + Merchant's 7000 debenture holders.

In its most recent report, in August this year, Grant Thornton  said Fortress had been repaid $20.9m.
It is still owed $2.5m, but the receiver says it expects the Fortress debt to be fully repaid.

KordaMentha's August report to debenture holders makes much grimmer reading. The only assets remaining in the company are insurance claims for loans (to the likes of failed property company Blue Chip) on which Capital + Merchant will suffer a shortfall. The receiver understands the insurer has not accepted the claims.

Grant Thornton says debenture holders can expect only 2 cents in the dollar  and that is before interest owed on the Fortress debt and the receivers' fees have been paid.

Initially, the receiver estimated debenture holders could expect between 14  and 59 per cent, but the ``lack of loan quality'' and deteriorating property markets had put paid to that.

When Capital + Merchant collapsed, many debenture holders complained that they had been encouraged to invest because their financial advisers told them their investments were guaranteed by Lloyds of London, a claim also made in Capital + Merchant's promotional material. This was not correct.

Another issue is the extent of intercompany loans.

``They disclosed about $10m as being related-party loans,'' Grant Thornton's Tim Downes told The Sunday Star-Times in September this year.

``Our work has uncovered $90m of related-party loans, $80m of which wasn't disclosed, and, of the $90m, we've recovered $10m. So it's horrendous for investors.''

The Serious Fraud Office said this week it was maintaining a watching brief on Capital + Merchant, as it was doing with all collapsed finance companies, but no particular investigation had been ordered into the company.

The Independent