SCF director accused of harassment
A South Canterbury Finance director has given evidence he was warned for harassing a pensioner after approaching chair Allan Hubbard at his home following a failed leadership coup.
The trial of former South Canterbury Finance (SCF) chief executive Lachie McLeod and former directors Edward Sullivan and Robert White is in its fourth day at the High Court at Timaru. Former director Stuart Nattrass is the first to give evidence against his former colleagues.
The three defendants have pleaded not guilty to 18 individual and combined fraud charges laid by the Serious Fraud Office in December 2011. SCF collapsed in August 2010, with $1.58 billion of taxpayers' money paid to investors under the Crown Deposit Guarantee Scheme.
The trial began last Wednesday before Justice Paul Heath. It is set down for four months.
Nattrass was a director of SCF from 2002 to 2009.
By 2009, Nattrass said recapitalisation discussions were occurring with businessman George Kerr and the Government to save SCF from collapse.
"Government equity had more weight than private equity.
"The ultimate objective was to recapitalise the business as it relied on a single source of capital (parent company Southbury) which was no longer able to make good."
Hubbard was running his own rescue plan, he said.
"We had been trying to sell Helicopters New Zealand which had a high underlying value. Mr Hubbard declined to relinquish the asset - instead he came up with another plan that came to nothing."
Soon after, on August 20, 2009, a vote of no confidence was passed in Hubbard as chairman, seconded by Sullivan and agreed to by White.
"The wider group accepted me as fulfilling the role (of chairman) but Mr Sullivan was not complimentary."
He tried to contact Sullivan and Hubbard following the meeting but could not make contact. Meanwhile Sullivan had contacted Hubbard and made him aware the vote of no confidence was afoot.
The same day a recapitalisation deal came through from Kerr, so he took that to Hubbard's house where he was on dialysis.
"Then I got a call from an Auckland law firm asking me to leave the Huabbard's house as I was harassing pensioners in their home, the following day I resigned."
In his resignation letter he raised concerns about the board and said many of the business practices of the major shareholder, Hubbard, were "not aligned to best practice for a public float".
"I implore the directors of SCF to recapitalise the business with a view to becoming a bank as impending regulations changes are going to make finance companies a redundant model."
Nattrass gave evidence this morning about board dynamics, including an attempt to remove Hubbard.
He told the court that because SCF chairman and chief financial backer, the now deceased Hubbard, was quiet during board meetings Sullivan took the lead and determined the way a minute was recorded.
Sullivan was also the sole source of legal advice.
"Several times I said external advice may be helpful, but Mr Hubbard would always be unwilling to pay for services other than those Ed was making available," Nattrass said.
McLeod was appointed by Hubbard as the chief executive without consultation with the board. Nattrass said he had pushed for external directors to be appointed to the board.
"Mr Hubbard indicated he had generally entertained the idea," he said.
"When other names were mentioned Mr Hubbard always had an issue with the names put forward [for a director role]."
In July 2007, Nattrass, Sullivan and White met at Sullivan's house to discuss removing Hubbard from his position as chairman because he had been unwell and went on to require dialysis.
"I felt in conversations with fellow directors there was a need to move Mr Hubbard on, but this was a personality-based business, a great deal of investment was there because of Mr Hubbard's reputation," he said.
"Removal of Mr Hubbard in a cold hard coup could have put that at risk."
Loans that became stressed were often taken over by SCF rather than insolvency proceedings being started.
"Mr Sullivan or Mr McLeod would be assigned to the business and report back to the board," Nattrass said.
"Records were kept by Mr Hubbard's own ledger which he took responsibility for."
Nattrass said that when he joined SCF it held $400 million in assets and by 2007 it was $1.4b.
"A business that grows that size really must change its processes and systems," he said.
"I don't believe we acted fast enough on that."
The trial continues, with Nattrass expected to be on the stand for the rest of the week.