Nelson loans puzzle under spotlight

A third finance company in a disastrous ring of lending in Nelson may be placed into liquidation later this month and the Serious Fraud Office has confirmed it is now investigating allegations of wrongdoing.

Halifax Finance, which had no prospectus despite raising money from the public, played a big part in the collapse of LDC and F&I finance, which both failed in September 2007 owing investors a combined $37 million and rocking New Zealand's sunshine capital.

Both LDC and F&I lent large sums to Halifax, which on-lent it in risky loans including some to a buyer of old military helicopters that was never granted a licence to operate commercially, as well as in a related-party car dealership loan that was never repaid.

But there are far darker accusations flying than ill-conceived lending. Complaints have been made to Nelson police relating to the three companies and Serious Fraud Office director Adam Feeley last week confirmed a file had been received from Nelson police.

"There's not a lot I can say at the moment. We are looking at it and we are also collaborating between ourselves, the police and the Securities Commission," Feeley said.

So bad was Halifax's lending that in May 2006, just $6.1m of its $19m loan book was considered collectable in full, documents submitted to Christchurch High Court allege.

At the time, LDC had loans to Halifax of $9.8m while Halifax owed F&I $7.2m.

Now, private investors in Halifax Finance have applied to put Halifax into liquidation. A court date is set for August 12.

The Sunday Star-Times understands the move has been prompted by the lack of official action against Halifax Finance director Paul Brownie, who investors said stopped paying them interest on money they invested in Halifax Finance over three years ago.

They said Brownie promised to try to pay them their money back, but no money had been forthcoming and all communications from Halifax had now ceased.

Several of those investors in Halifax, who said they had all but given up seeing their money again, told the paper they trusted Halifax Finance because it had an office on a main Nelson street – Halifax St – and Brownie, who F&I directors Andrew Harding and Murray Scholfield are attempting to bankrupt through the courts, was well-known as a businessman around the city.

The investors added they had never seen a prospectus or investment statement, but did not consider themselves sophisticated investors. They had not complained to the Securities Commission, but said they wanted an independent liquidator put into Halifax to find out what happened to their money.

"We were informed when Paul took our money that most of the money was against things like bridging loans and small farms, but then it all came out about the helicopter debacle," one said.

The collapse of the three finance companies has led to much local bitterness, rumour and accusation in Nelson and a legal tug of war over nearly $9m between PWC, as the receivers for LDC, and the trustee for F&I, with both sides claiming the money should be paid to their investors.

Statements of claim lodged with the High Court in Christchurch for both parties detail the row over two deals done in 2006 and 2007 to "recapitalise" LDC, which allowed LDC to claim the proceeds when F&I's loans were collected by receiver PricewaterhouseCoopers.

In July 2006, LDC was "recapitalised" in a circular transaction where LDC loaned $1.5m to F&I which it used to buy shares in LDC. A second recapitalisation, in March 2007, involved a $4m loans for equity swap with F&I.

Harding and Scholfield claim to have been misled about the state of LDC's finances in the run-up to the deals and have asked the high court to set them aside. Meanwhile, investor representatives joined as second plaintiffs to Harding and Scholfield's legal case, claim F&I raised deposits without a prospectus and therefore the money was "subject to a constructive trust in favour of the depositors" under securities law and had to be returned to them.

Lawyers for PWC say LDC's investors should get the money, and deny LDC misled Harding and Scholfield, though a report prepared by PWC when it acted as a consultant to LDC in the run-up to the deal (it denies acting for F&I as well), flagged the risk that the F&I money had been raised without a prospectus.

- © Fairfax NZ News