PGC has lost a fight to keep details of a loan it made to a related company, which is the subject of a Financial Markets Authority investigation, secret.

A Court of Appeal hearing held in Wellington yesterday resulted in the lifting of a suppression order banning details of a judgment made by the High Court last month.

The judgment reveals details of a $25 million loan made by a cash fund of Perpetual Cash Management Fund to Torchlight.

The judgement of Justice Heath reveals that the loan in question was made as the result of an email sent at 7.22pm on Sunday, February 19 from George Kerr, Torchlight's chairman and the owner of 76.5 per cent of PGC's shares.

"No formal application for finance was made. Nor was any information provided about Torchlight's creditworthiness or financial position," Justice Heath wrote.

The following day, the board of PGC met at 3.50pm to discuss and approve the loan because it was so large it would "have exceeded the existing investment and credit criteria", Justice Heath wrote.

Security was given over five properties in the Queenstown/Wanaka area, with a letter sent from Perpetual to Torchlight on February 21 outlining the terms of the loan.

Two days later, a member of the Perpetual Corporate Trust Board wrote to Perpetual Asset Management raising concerns that the loan was to a "related party" but received no response.

In March, the corporate trust board noted concerns about the loan but said it was unclear whether it had the authority to act, and sought clarification from Perpetual Trust on its delegations to monitor internal funds, describing the current situation as "unworkable".

Despite this, an initial $18m loan grew to $28m by April 4, with Justice Heath saying there was "no evidence before me that the additional amounts advanced, over and above the original $18 million, were approved in the same way as the initial advance".

PGC shares were placed in a trading halt this afternoon, pending an announcement from the company.

"UNRESOLVED DIFFERENCES"

The FMA said last month that it was investigating PGC on the issue of related party loans, while its auditors, KPMG, quit in May because of "unresolved differences as to whether certain transactions should be disclosed as related party transactions, and concerns over the adequacy of governance and management of financial reporting".

FMA said this afternoon in a statement that it "can now confirm its continued engagement with Perpetual Trust Limited (Perpetual) to recover $25m in related party loans made by Perpetual as trustee of the Perpetual Cash Management Fund (Fund)".

Perpetual is a subsidiary of Pyne Gould Corporation (PGC). Christchurch businessman George Kerr, the great-great grandson of one of the company's founders, owns 73 per cent of PGC.

In a statement, the FMA said it took the view that "these loans were not in the best interests of investors in the Funds and the circumstances in which they were made by Perpetual reflects a lack of judgment and lack of understanding of its role as trustee of funds of this nature".

It had since been pressing Perpetual to seek the return of the loans, although around half of the loans remained outstanding.

"FMA considers Perpetual has now had ample time to secure repayment of the loans, but is concerned at the lack of progress and the consequent risk to investors," the regulator said.

"FMA believes investors in the Fund need to be aware of its concerns about the loans made by the Fund to Torchlight and the delays in repayment, so they can make informed decisions about their investments."

PGC said in a statement that Perpetual had indicated that it did not accept the FMA's interpretation and intended to dispute it. It said Perpetual "considers that the interfund facility provides superior first ranking security and provides a good return".

The statement added: "However, to alleviate the concerns raised by the FMA, Perpetual has (without prejudice to its position) asked Torchlight to prepay the $28 million interfund facility in advance of the scheduled repayment in February 2013.

"In response, Torchlight agreed to do so. To date, Torchlight has prepaid $15 million in cash leaving a balance of approximately $13 million outstanding. Full prepayment is expected this month."

Today's announcement follows legal moves by PGC to control the release of details of the loan.

PGC had originally opposed any detail of a High Court judgment, or the loan, from being released, however in the Court of Appeal yesterday its lawyers argued that there should be "controlled publication" in the form of a letter to unit holders, in a form agreed by it and the FMA.

Its lawyers argued that publication of the judgment could lead to more damage to the fund than would otherwise be the case.

John Billington QC, appearing for the appellants, told the Court of Appeal that parts of the judgment were "unnecessary and prejudicial".

While the judgment was about issues of confidentiality, it contained "a series of half formed and half debated facts" about the case, which had not been the subject of a proper hearing, Billington said.

"If there was anything legally wrong it would have to be the subject of a separate legal hearing."

Hugh Rennie, QC, appearing for the FMA, argued that there should be full publication of the decision, and that unit holders in the fund had the right to know about the lending.

Rennie said that while the board of directors of PGC had backed the soundness of the loan, there were discussions at an executive level which suggested some staff believed the loan should not have been allowed.

"It was perceived to be unauthorised. That difference is at the heart of the difference between the appellant and the FMA, because the FMA considers that the investors in these funds need to know the full information so they can exercise rights that they may have", which included seeking the removal of the trustee or compensation, Rennie said.

"The appellant's position until last weekend was these people should not be allowed to know, and the appellant's position today is these people should be allowed to know only enough to think that there is a loan which is a good one."

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