The rich blamed for SCF's fall

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South Canterbury Finance's collapse appears to have been caused in part by rich investors pulling out cash to get below new limits for the government's deposit guarantee scheme.

Trustee Executors regional manager Yogesh Mody said "many investors" with deposits above the $250,000 limit that will apply to the revised scheme from October 12 had been "rearranging" their investments to get below that figure ahead of the deadline.

Mr Mody, who appointed receivers to SCF on Tuesday, said the moves were symptomatic of the company's inability to attract and keep investors amid doubts about its survival.

"In some ways, this contributed to one of the core problems the company had been facing – the lack of confidence by investors to reinvest or invest larger sums this year, notwithstanding the extended government guarantee," he said.

The guarantee scheme was introduced in October 2008 amid fears of a run on finance companies as the global recession hit New Zealand, and at present protects deposits of up to $1 million an investor.

It was to have ended next month, but the Government extended it for approved companies – which included SCF – through to the end of next year.

Eligibility has been tightened under the new regime and the maximum deposit guaranteed will reduce to $250,000.

SCF collapsed owing an estimated $1.6 billion to about 32,000 deposit-holders and several thousand other investors.

The Government immediately stepped in to pay out investors, giving $1.6b to the trustees and lending another $175 million to the receivers to take over debts owed to creditors ahead of the Crown in the queue.

The huge payout has raised questions about whether the Treasury should have withdrawn the deed of guarantee to limit taxpayer liability as SCF continued taking deposits amid deep concerns about its ability to survive.

Had the deed been withdrawn, existing depositors would have continued to be covered, but not those who placed deposits after that.

Finance Minister Bill English revealed on Tuesday that corporate doctors KordaMentha had been advising the Government on the company since midway through last year, but a Treasury spokesman said last night that there were no grounds to withdraw the guarantee.

The Treasury was unable to say how many investors had placed deposits with South Canterbury Finance since it was included in the original deposit guarantee scheme in October 2008, how many had joined since KordaMentha was asked to monitor the company or how many had joined since it was announced in April that it would be included in the extended scheme.

A spokesman for Mr English said the Government had always been open about the fact that deposit guarantee schemes were not perfect, but the alternative would have been to risk a run on finance companies that could have led to economic meltdowns like those seen in Ireland and Greece.