Hanover labyrinth a curious tangle
A few weeks ago Chalkie was in need of diversion and decided to revisit the maze called Hanover Finance.
Like any maze it looks innocuous at the entrance, but as it draws you into its looping corridors and blind alleys, it is easy to become distracted by myriad shapes in the shadows.
Only by careful deployment of a ball of wool was Chalkie able to emerge from its embrace with the beginnings of a map that traces some distinctly strange arrangments.
The deals involve a double bankrupt, a rural property development, stiffed creditors and, of course, several millions of dollars.
Let's begin in the middle, in the spring of 2009, when the Bream Bay News ran a story about a subdivision at Waipu Caves Rd just south of Whangarei.
It told of several contractors owed large sums for work on the property whose mysterious owners hid their identities behind a corporate trustee.
Fencing contractor Jeff Bowers was owed $53,000, a lot of money for a small business. He told Chalkie last week he is still owed the money.
He wasn't the only one unpaid - road builder Dwayne Morgan was owed $11,000, fertiliser supplier Alex McLennan $11,000 and security systems installer Dave McCluggage said he was owed $8000-$10,000.
The subdivision's owner in 2009 was listed in property records as North Farm Trustees, whose sole director and shareholder was one Roy Brown.
North Farm is now defunct. Its liquidator described it as a bare trustee for a trust dealing in farmland and rural property subdivision.
The beneficiaries of the trust were not identified, but the Waipu Caves contractors believed the owner they were working for was a man named Ethnik Krasniqi.
Connoisseurs of Hanover lore may recall Krasniqi's name being linked to the failed Kinloch development near Taupo, sold by Hanover in a mortgagee sale to a trust whose corporate trustee was Coromandel Investment Trustees - whose sole director and shareholder was Roy Brown.
Krasniqi, reported to be the manager of the development while it was owned by the trust, is a twice-bankrupted wheeler dealer who appears to have a fondness for Lamborghinis, judging by a court ruling on a minor commercial spat in which he had a walk-on part.
His second bankruptcy was discharged in December 2006, six months after North Farm Trustees acquired the subdivision at Waipu Caves from a local farmer.
Chalkie reckons therein could be an explanation for the opaque ownership - bankrupts probably find it awkward doing large commercial property transactions.
However, you would think the outfit that lent North Farm Trustees the money to buy the land would have taken care to find out who it was lending to, so maybe it wasn't Krasniqi.
In this case the lender was a finance syndicate set up by Auckland law firm Short & Partners which agreed a $1.5 million mortgage in June 2006 and increased the priority amount to $2.5m in April 2008.
Both documents were signed by Brown. Chalkie understands Short was not aware who was behind the trust.
All this was merely another opaque property deal until October 2009, when the subdivision was sold twice in the same day to end up in the hands of Hanover Finance. The price was $6.75m.
Hanover at this point was in moratorium after collapsing in July 2008. It was so short of cash its payback promise to investors was just 2c in the dollar each quarter, starting in March 2009.
So why would a cash-strapped finance company already in default buy a block of rural development land, when such assets were clearly desperately difficult to sell?
Hanover spokeswoman Niki Schuck told Chalkie the transaction "would have been subjected to the agreed moratorium protocols, which included approval from independent directors and trustee consent, so the transaction would have been done with the company's best interest in mind".
Unfortunately the company was unable to say more about it, because it had "very little administrative resource to call on to locate files and provide information specific to this transaction".
Perhaps Chalkie can refresh their memories.
Between North Farm Trustees and Hanover Finance, the Waipu Caves property passed momentarily - at 9.02am on October 8 - through the hands of Ganson Ltd, a company belonging to Auckland-based property investor Andrew Budge.
Ganson bought the property for $6m and sold it for $6.75m - a difference that equates to GST. This means Ganson did not gain or lose, despite the price being well in excess of the property's $2.8m rateable value.
As Chalkie understands it, Ganson did the Waipu deal at Hanover's request as part of another Hanover transaction involving the Bush Inn shopping mall on Riccarton Rd in Christchurch.
Bush Inn's owner at the time was Platinum Property Group, whose sole director and shareholder, residential property developer Warren Fenning, is a former close neighbour and business associate of Hanover boss Mark Hotchin.
Fenning's house in Orakei backs on to Hotchin's mansion under construction on Paritai Drive, and the two share a company called Viti Resort Ltd.
Fenning also has links to another public figure - reality show celebrity Sally Ridge, with whom he is reportedly romantically involved.
Anyway, Platinum had acquired Bush Inn from Bush Inn Corporation, part of the Axis Property Group, owned by Hotchin and his Hanover partner Eric Watson. Platinum's purchase in early 2006 was financed by a loan from Hanover Finance with a priority amount of $29m.
So, in effect, the money from Hanover Finance went to a Hotchin and Watson company, a subsidiary of Axis. Whether this counts as a related-party transaction is moot, but Chalkie couldn't find a reference to it in Hanover's prospectus.
Unfortunately what Fenning paid is not disclosed in property documents, but we do know that when Budge bought Bush Inn from Fenning in late 2009, the price was $37.6m.
In the process, Budge bought out Hanover's loan to Fenning.
This was getting complicated, so it probably helped that the same solicitor from a major law firm represented both Hanover Finance and Platinum during the transfers.
Given this detail and the closeness between Fenning and Hotchin, Chalkie can't help wondering whether Fenning's Bush Inn ownership was at arm's length from Hanover.
It also seems odd that Hanover, which was desperate for cash, would want to take a subdivision in Waipu as part-payment for its interest in Bush Inn, especially when the $6m valuation was so much higher than the rateable value.
And Chalkie finds it curious that, according to a 2007 High Court judgment, North Farm Trustees liquidator Stuart Robertson was Krasniqi's employer during his bankruptcy.
Although the failed lender's trustee apparently had no concerns about these arrangements, Chalkie is struggling to think of a reason they could make commercial sense for Hanover.
No wonder there remains such unease around the company's labyrinthine affairs, even if no-one has ever seen the minotaur.
- Chalkie is written by Tim Hunter, deputy editor of the Fairfax Business Bureau.