Verbal deal to rescue loan - Armer

Last updated 05:00 05/04/2014

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Alleged shell companies and stooge directors have dominated the third week of the South Canterbury Finance (SCF) $1.58 billion fraud trial.

The trial of two former SCF directors, Edward Sullivan and Robert White, and former chief executive Lachie McLeod, continued during the week before Justice Paul Heath in the High Court at Timaru. The three face 18 charges laid by the Serious Fraud Office (SFO).

The case adjourned at lunchtime yesterday.

Nine key transactions have given rise to the charges. The last charge outlined was a loan to Dairy Holdings chairman Colin Armer which the Crown said breached SCF's trust deed.

As a result McLeod faces a charge of theft by a person in a special relationship, as he is alleged to have structured the loan to circumvent the trust deed.

The trust deed states that SCF cannot have exposure to one individual or group of more than 35 per cent of shareholders' funds. In June 2009 that equalled $79 million.

Armer and former SCF chairman Allan Hubbard formed Dairy Holdings (DHL) in 2001 in partnership with Alan Pye and three American shareholders.

In 2008 SCF purchased Hubbard's shares in DHL, which owns dairy farms throughout the South Island, for $75.5m.

Armer gave evidence that in 2009 milk prices were forecast to plummet.

"We were reluctant to go to the banks. There was going to be a shortfall of $12m to $14m. I got a call from Allan Hubbard who said SCF could not continue on with the loan and asked me to put the loan in my name and use my shares in DHL as security. I was not happy but verbally agreed."

A loan was advanced to Armer for $14.5m. The Crown argues as the loan was essentially for DHL it put SCF's exposure at $90.2m, well over the trust deed's limit of $79m.

The week started with details about how SCF poured $45m in loans into Auckland's Hyatt Hotel in a complicated series of transactions.

SCF loaned $25m to the newly formed Quadrant, the owner of the hotel, with Sullivan's brother-in-law, Peter Symes, as sole director.

The now deceased Symes said he never realised he owned the hotel.

Symes was also the sole director of a company used to loan $5.2m to a heating appliance company, which the Crown says was a related party, not disclosed in the prospectus.

On Thursday prominent Timaru building contractor Ross Lund denied he was a puppet director of Sullivan.

The trial continues. Fairfax NZ

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