Last resort for investors

The collapse of the company that developed the Grand Mercure Nelson Monaco has lifted the lid on more widespread investor concerns. KAREN GOODGER investigates.

Kathy Basalaj was trying to do the right thing. As a Nelson mother with two young boys, she decided five years ago that investing in the Monaco Resort would provide for her family's future while also supporting a great local concept.

Instead, Ms Basalaj unwittingly bought herself endless stress, anguish and financial hardship.

She says the situation became so bad that she once had a meeting with Monaco Management, Scott Sanders and Clare Davies, to explain why, as a single mother, she wasn't able to pay the thousands of dollars in ongoing costs incurred from her hotel unit when it wasn't producing any returns.

"They said, `If you don't pay, we'll liquidate you and you'll have to sell your family home'. They had me in tears."

Then came the 7am phone calls from debt collectors. "It was so stressful and hugely worrying."

Ms Basalaj says that ceased after she joined a group of lessors established to give investors a collective voice. "I wasn't the only one getting phone calls."

Monaco Management says it has "bent over backwards" to help Ms Basalaj. Mr Sanders says it would never make her sell her home.

"That's just not our nature," he claimed.

The resort's lessors group was started by Motueka man Mike Bannock who felt that someone needed to hold Monaco Management to account. Mr Bannock recalls seeing a news item on a failed company and hearing the receiver express surprise that investors did nothing to question management.

"I vowed that if I had anything to do with it, nobody was going to say the same of Monaco investors," he says. "We at least needed to ensure that we were seen to have done our best to remedy the unsatisfactory situation we all found ourselves in."

Mr Bannock purchased two units from plans for $285,000 each in 2003. Settlement took place in 2005. Mr Bannock says he has only once received a dividend and that was in 2006.

Each unit costs him $5000 a year in body corporate levies and rates. He says he has been invoiced for trading losses which, cumulatively with interest, now stand at $5000 a unit.

Mr Bannock readily admits that the lease agreement was introduced by the original developer, Mike Gepp, before Mr Sanders came on board.

Mr Gepp claimed in 2006 that Mr Sanders had staged a "coup" to force him out of the $60 million development. Now living in Australia, he remains bitter about what happened and isn't surprised by the latest turn in events. "It did struggle from the beginning to achieve occupancy with some wholesalers unwilling to send their customers to an unfinished development, but it was close to paying a return to investors," Mr Gepp said.

"We certainly didn't take profits and bill investors."

Monaco Management has largely continued with Mr Gepp's lease agreement, adding a couple of clauses that favour investors.

The lessors group says it has a problem with the way it is being interpreted and this has been the subject of protracted discussions, negotiations and legal advice.

Mr Bannock says Monaco Management put debt collectors on to some investors when talks broke down, but they were able to end this by informing agencies that the debt was in dispute.

Mr Bannock declined to talk when initially approached by The Nelson Mail and only did so after Mr Sanders publicly claimed that the resort had only a few disgruntled investors.

Mr Sanders believes Mr Bannock overestimates his support. "There are a silent majority and a vocal minority," Mr Sanders alleges. In less than 24 hours, Mr Sanders provided letters from five supportive investors, including Wellington accountant Tony Richardson, who says Monaco Management has been working constructively to sort out differences.

"This process has been thwarted by a disgruntled and vociferous few led by Mr Bannock, who do not understand the business or the challenges that need resolution," Mr Richardson wrote. "He and his cohorts do not seem to want a solution, but instead appear hell-bent on trying to destroy the value of other investors' interests as well as their own."

Mr Sanders claims Mr Bannock tried to stall the arbitration process.

Meanwhile, Wellington consultant Warwick Walbran successfully applied to liquidate Monaco Village Ltd – Mr Sanders' company – which sold him a unit in 2007 for $270,000 with a so-called guaranteed return of 8 per cent in two years.

"I was getting lots of positive stories and no money," Mr Walbran says.

Mr Sanders says the guaranteed returns were provided through financing with Lombard Finance which then went into receivership.

The Nelson Mail has sighted a collateral agreement signed by Mr Sanders more than a week after Lombard went into receivership, still promising the investor a guaranteed return of 8 per cent.

"We were given unrealistic expectations by Scott," Mr Walbran says.

Belgian investor Mark Van Gelder last year laid a complaint with the Advertising Standards Authority about units being promoted for sale. The complaints board found Monaco Village had substantiated the return was guaranteed for two years, but not three as advertised. It ruled the advertisement was likely to "deceive or mislead the consumer" and "did not observe a high standard of social responsibility".

Mr Gelder says he was frustrated the guaranteed returns were still being promoted on websites when his had not been paid. "This doesn't change my feelings towards investing in New Zealand. I am realistic enough to realise that something similar could have happened in Europe too."

Former Nelson lawyer Brian Smythe, now retired in Wellington, is among the investors who oppose investors undertaking litigation. "We are naturally disappointed the whole thing has not developed the way we would have liked it to have."

But the main problem is the resort was completed as the recession hit, and investors must remain patient, he says. "We feel it's a quality resort. It's a great setup. There have been management issues, but I think Scott Sanders saw an opportunity, picked it up and ended up with his head in a bit of a mincer."

Monaco Management agreed to cover operational losses on behalf of investors and reorganise the leases, he says.

Like Mr Sanders, Mr Smythe points out that Monaco Village and Monaco Management are not related. Mr Walbran disputes this. "I've certainly got documentation that ties the parties together – that's in the form of guaranteed returns," he says. "To say they're nothing to do with one another is not correct."

Mr Walbran is hopeful Monaco Village's liquidation will uncover information that brings a more favourable outcome for investors who have 30-year leases with Monaco Management.

"I'd been surprised if I get any money out of Monaco Village Ltd."

Mr Sanders and his accountant say Monaco Management is profitable and not affected by the liquidation of Monaco Village.

Receiver John Fisk says the company owes Lombard Finance $4.6m and a further $1.09m to trade creditors and guaranteed return creditors.

A range of marketing strategies are being considered for selling Monaco Village's 13 remaining units to recover debt.

Mr Fisk says he can understand why investors who were promised guaranteed returns are upset. "At that stage, the guaranteed returns were coming from a company that didn't have the money set aside in a trust account. That's the risk they took."

Mr Fisk says he was involved in a compromise deal put to creditors before Monaco Village being placed in receivership. "Unfortunately, a number of guaranteed-return investors wanted a full amount. I think some people have got quite determined views on what they want out of this."

Liquidator David Vance says it is fair to assume at the moment there won't be any money left over to pay unsecured creditors. His job involves reviewing the operation of Monaco Village Ltd. This will include things such as looking at who received money and whether it should have been shared out in different ways, he says.

The Nelson Mail has sought comment from many people who have either invested in the resort or are owed money by Monaco Village Ltd. Many don't wish to be named, fearing it will create further problems if they do.

When The Nelson Mail took Ms Basalaj to be photographed on the roadside outside the resort, Ms Davies emerged demanding to know what was happening and telling Ms Basalaj she was ruining the resort's image. A short time later a staff member came out and presented Ms Basalaj with yet another bill, this time $275 for cleaning that took place last April. She was told the resort didn't know where to send it to, although Ms Basalaj's address was on the top.

Mr Sanders says the bill was served by a "loyal" staff member acting of her own accord.

Watching Mr Sanders continue with other development plans, renovate his home and go on overseas holidays while investors see no returns has infuriated Ms Basalaj.

"He lives like a king," she says. "We pay for that."

Mr Sanders says he lives in a "pretty typical suburban home". Records show he bought it in 2008 for $650,000. "Yes, we did renovations on our house, again pretty typical stuff and yes, we had a holiday with our family," Mr Sanders says.

"We work hard for this. The other business opportunities we are exploring are just that – other businesses. "We have not taken any money out of Monaco Village to fund these."

Ms Basalaj, like Mr Bannock and Mr Walbran, would love to sell her investment in the resort, but doesn't believe anyone would want to buy it. So instead she lives in hope.

"I would like to see Scott Sanders and Clare Davies gone, and to have a management team who would enable all investors to get the returns we deserve."

Q&A WITH SCOTT SANDERS

Where do you think this is all heading now?

"Clare and I are partners in the operational company here. It's a separate company with separate ownership and separate shareholdings and it's not related to the development company. The development company was an old company set up by Mike Gepp and myself to build the resort.

"We finished the resort in November 2008, and it was judged the best hotel in the country that year and won the supreme tourism award that year. It's growing at 15 to 20 per cent."

If the resort is performing so well, why aren't the guaranteed returns being paid? "The guaranteed returns were underwritten by Lombard through the development company and the development company is in liquidation."

Are the guaranteed returns not based on the performance of the resort?

"The resort was never expected to deliver 8 per cent in the first year. It takes time. It only finished 14 months ago. It takes time to trade up and the tourism number projections in Nelson are well down on what Tourism New Zealand projected four years ago.

"They're about 40 per cent. However, the resort is trading and growing well and it's starting to deliver returns to investors and it will carry on growing."

So you're saying that it doesn't matter how well the resort performed in the last few years, they still wouldn't have got the returns promised?

"The investors you've talked to were sold to by other people – not by me or our company. They were given expectations that were unrealistic."

Why should the people who aren't getting the returns they were promised be locked into paying ongoing management costs to Monaco Management Ltd?

"Everyone who bought a unit here signed a lease and they had legal advice. Every sale was subject to their solicitor approving the lease. They should understand what they have signed. The lease is very clear. It's a pretty standard lease."

Is the liquidation likely to have an impact on any of your other business affairs?

"My other business affairs are just start-ups. The Best Island thing has been misrepresented a bit." What do you mean by `It's a start-up – it won't affect it'? "It just a bare bit of land. Nothing has happened there yet. We're still working on resource consents and things.

"People have seen us build a successful resort at Terrace Downs and here, and this will be another one." If you owe a whole heap of money in one area, how fair is it to then being going off and spending money in another area?

"You're making assumptions that these people won't get paid and that I'm pulling money out of this company to put into another company.

"That's not happening. I'm not spending any money at Best Island."

If the company is being liquidated, isn't it a fair assumption to make that people aren't going to get paid?

"There are assets there." Resource consents and start-ups cost money. Are you saying you haven't spent a cent? "No, I'm not saying that. I spent quite a bit of money two years ago getting resource consent."

But you're not spending anything on it at the moment? "No."

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