Trustee argues loan breached deed

MARTA STEEMAN
Last updated 14:49 13/07/2012

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The independent supervisor of two Perpetual funds says a loan from a Perpetual cash fund to a Pyne Gould Torchlight fund breached the cash fund's trust deed but Pyne Gould is disputing that.

PGC says the matter will be argued in the High Court next month.

Trustees Executors said today that in its view the loan from the Perpetual Cash Management Fund to the Torchlight fund was a related party transaction.

A High Court oral judgment released yesterday says the court has yet to rule whether the transaction was between related parties.

The term ''related parties'' had been used loosely at a hearing in June 26, the judgment said.

The issue was whether the words ''related parties'' included limited partnerships - Torchlight fund is a limited partnership. They were entities not known to the law at the time the trust deed of the cash fund was first formulated, the judgment said.

Trustees Executors (TEL), the statutory supervisor of the cash fund and the frozen Perpetual Mortgage Fund said today despite certification from the directors of Perpetual, a company owned by Pyne Gould, that no related party advances had been made by the cash fund TEL considered the cash fund and Torchlight fund related.

''TEL considers these advances to have been made in breach of the Cash Funds Trust Deed and Offer Documentation.''

TEL became aware of the loans through analysis of the monthly management accounts for the cash fund and notified the Financial Markets Authority.

Perpetual was a trustee and owner of the funds which are group investment funds and those funds are required to have a statutory supervisor which is an independent party to ensure the trust deed is not breached, TEL said.

Even if the trustee of a group investment fund is not independent the trustee is still required to act in the best interests of investors, TEL said.

The Torchlight fund still owed $13m to the cash fund.

Publicity about the loan to Torchlight had triggered a significant increase in requests for redemptions by investors in the mortgage fund.

To preserve equity for all investors TEL sough court orders to temporarily suspend withdrawals from the mortgage fund.

Yesterday the High Court made further orders for observers (Vivian Fatupaito and Christopher Duffy) to be appointed to oversee the activities of Perpetual in its management of the mortgage and cash funds.

The High Court noted that Pyne Gould told the NZX last week it expected repayment of the Torchlight loan before the end of July.

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The High Court has also directed that valuations of the land secured by the Torchlight loan must be obtained from a valuer nominated by TEL, at the cost of Perpetual, not investors in the funds, by 25 July.

A further court hearing is timetabled to occur on 3 August 2012.

- BusinessDay.co.nz

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