Hanover gets lawsuit bills, says Allied

Allied Farmers, the listed company taking over Hanover Finance's moribund property and loan assets, says it will carry no liabilities relating to loans at the centre of bitter litigation between Hanover and developer Mark Cooper.

Allied managing director Rob Alloway confirmed that the loans, believed to be worth $20 million to $25 million, were included in the assets being transferred to Allied as part of a deal approved by Hanover investors last week.

But any liabilities that arose as a result of the court action would remain with Hanover, he said.

Cooper was an Auckland property developer who tried his hand in the US market at the height of its housing boom. Hanover provided his development company with mortgage finance for a condominium project he was developing in Los Angeles.

The project was stalled by the US housing market crunch and Hanover has been trying to recover its money for the past two years.

But Cooper has fiercely resisted Hanover's moves to recover the money and the dispute led to a series of claims and counterclaims being made by both sides in the US courts.

It has also developed into a personal and, at times, bitter battle of wills between Cooper and Hanover co-owner Mark Hotchin, which has occasionally looked more like a soap opera than a business dispute.

Cooper has maintained that Hanover was involved in the project as an equity partner rather than as a mere financier and the loans were effectively sham transactions designed to hide the true nature of its involvement, claims which Hanover has always stoutly denied.

Hanover subsequently laid complaints with police alleging blackmail and fraud, which saw Cooper interviewed at Auckland police station during a brief return visit to New Zealand in February, although it is believed the police decided the matter was a civil dispute and did not take it further.

Cooper also had a hand in an embarrassing claim against Hanover in the Disputes Tribunal, brought by a Te Puke man who alleged Hanover's prospectus was misleading, a claim based in part on information provided by Cooper. Although the claim was eventually withdrawn, it generated bucketloads of bad publicity for Hanover.

In the meantime, Hanover has doggedly continued to pursue Cooper and the financial noose appears to be tightening around his neck. In February his luxury holiday home on Waiheke Island was sold by mortgagee sale. His US company, Pacific Northstar Property Group, is under the control of administrators after filing for bankruptcy and Hanover has appointed receivers over the Los Angeles condominium development.

Alloway said Allied's arrangement with Hanover over the disputed loans entailed Hanover acting as bare trustee for the loans while it continued the legal proceedings, but once they were resolved, any money recovered would come over to Allied.

In the meantime, Alloway is expecting savvy professional investors with an eye for a bargain to take advantage of Allied's slumping share price and start accumulating substantial stakes.

Hanover and United Finance investors are due to receive shares in Allied next week, as part of a deal to transfer the finance companies' assets to Allied.

"We know there will be some shareholders who will want cash for Christmas and will be sellers," Alloway said.

"And as always, there will be people who speculate and understand value and they will be buyers. I've just spoken with a large professional investor this morning that had a very real interest in the stock."

HOTCHIN/WATSON MINNOW SHOPS FOR LOANS

Mark Hotchin and Eric Watson's other finance company, FAI Money, is shopping around for a portfolio of loans to buy to bulk up the company, a finance industry source says. By comparison to Hanover Finance, which just this week narrowly secured debentureholders' agreement to transfer its loans to Allied Farmers, FAI Money is a minnow with secured deposits placed by mum and dad investors of just $9.3 million at the end of June this year. However it is advertising heavily for debentureholders, calling its 6.75% 12-month term investment rate "a seriously good rate for serious investors". A finance industry source said: "FAI Money is in the market looking to buy finance receivables", though he could not say how the company planned to pay for them. There's a healthy market in buying and selling loan books at the moment with so many lenders struggling to collect in loans. FAI Money, which is currently covered by the Treasury deposit guarantee scheme, altered its prospectus in October giving it the ability to begin investing in property loans in addition to the consumer loans it specialised in, though its trustee, Perpetual, has insisted on a new trust deed for FAI Money with tighter requirements. This includes "new, more stringent restrictions on related-party transactions", limits on distributions to shareholders and tighter loan criteria. FAI Money was a part of the Hanover Group until it was sold in a series of transactions this year to "interests associated with Eric Watson and Mark Hotchin". – Rob Stock

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