The trustee for several failed finance companies, Perpetual Trust, is being lined up for extraordinary legal action by receivers it appointed to Capital + Merchant Finance.

Investors owed $167 million were left with total losses from Capital + Merchant's collapse in 2007 and litigation appears the only remaining avenue to claw back some money.

Business Day understands receivers Grant Graham and Brendon Gibson of Korda Mentha have told Perpetual they are considering making a claim against the trustee, which had a legal obligation to supervise Capital + Merchant on investors' behalf.

The prospect creates a bizarre legal problem.

"It puts us in an unworkable position of conflict," said Perpetual's head of corporate trust Matthew Lancaster, "because we are the ones who appoint the receiver and theoretically we have the ability to direct them."

Lancaster said the perception for conflict of interest meant Perpetual would resign as trustee and was seeking court approval for Public Trust to be appointed in its place.

Details of the receivers' claim are not available, although Lancaster said Perpetual had been given a "broad outline" of what it would involve.

In a statement, Perpetual said it "considers the intimated claim is wholly without merit."

The receivers declined to comment, saying matters were "now in front of the court".

A further complication involving Public Trust, whose chairman Trevor Janes spent 18 months to October 2006 as a Capital + Merchant director, was averted when Janes stood aside from any involvement.

"Obviously a responsible person, if they thought there was any conflict, would recuse themselves, and I'd like to believe I'm a responsible person," he said. "I cannot and would not [be involved]. It would be quite improper."

The failure of Capital + Merchant led to criminal convictions for its three former principals Neal Nicholls, Wayne Douglas and Owen Tallentire. Further charges brought by the Financial Markets Authority against Tallentire, Nicholls and fellow directors Colin Ryan and Robert Sutherland are due for court hearing next February.

As well as Capital + Merchant, Perpetual was trustee for investors in Strategic Finance, St Laurence and Nathans Finance, among others.

Perpetual's owner, Pyne Gould Corporation, has said it is considering divesting the firm, potentially through a sale to its management.

- © Fairfax NZ News