South Canterbury Finance (SCF) attempted to call Treasury's bluff on the Crown deed of guarantee, the High Court at Timaru has heard.
Former SCF directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod, face a total of 18 charges brought by the Serious Fraud Office following SCF's $1.58 billion collapse.
Crown counsel Colin Carruthers, QC, went over counts five, six and seven yesterday.
Count seven relates to the Crown deed of guarantee. Under the deed, the company could not enter into any transaction over 1 per cent of SCF's assets unless it was on arm's-length terms and not a related party.
Sullivan, White and McLeod face a charge of theft by a person in a special relationship because of a loan of $25 million to Quadrant to buy the Hyatt Hotel, which the Crown argues is a related party and was over 1 per cent.
Quadrant sole director was Sullivan's brother-in-law, Peter Symes. The Crown contends this was to conceal a related party, with Sullivan actually in control.
Carruthers said the three accused discussed the 1 per cent limit and chief financial officer Graeme Brown emailed White and suggested they call Treasury's bluff and say they could not enter the Crown guarantee, in an attempt to have the 1 per cent clause altered. They went on to enter the guarantee.
McLeod emailed White and said "major problems doing anything over $20m unless proposal can be taken outside the Crown related-party barriers".
Sullivan is charged with count six, which also focused on the $25m which the Crown say breached SCF's trust deed as it was lending to a related party at more favourable terms.
Count five focused on a loan to Dairy Holdings chairman Colin Armer. The Crown said the loan was in fact a related party transaction but was not declared.
Armer and former SCF chairman Allan Hubbard formed Dairy Holdings (DHL) in 2001 in partnership with four others. A funding shortfall was required. A loan was advanced to Armer personally for $12m to avoid breaching the trust deed. The Crown argues that, as the loan was essentially for DHL, it was actually a related party.