Bad loans at SCF soared

Impaired loans at South Canterbury Finance (SCF) ballooned from $61 million to $302m in just 15 months in the year before its collapse, the High Court at Timaru has been told.

Former SCF chief executive Lachie McLeod, and former directors Edward Sullivan and Robert White, are on trial before Justice Paul Heath, facing a combined 18 charges laid by the Serious Fraud Office.

SCF collapsed in August 2010, with $1.58 billion of taxpayers' money paid to investors under the government retail deposit guarantee scheme.

Yesterday, Trustee Executors director Yogesh Mody was on the witness stand. Trustee Executors was the trustee for SCF.

He said he contacted the board with concerns about the number of related-party transactions, in particular loans approved to senior managers. He said McLeod dismissed these concerns.

In June 2008, impaired loans were at $61m, which grew to $180m in March 2009 and $302m by September 2009.

In a business review it was resolved to downsize the loan book from $2.2b to $1b.

"I was becoming less comfortable relying on anyone's correspondence [from SCF] and this was reflected in the increased communication I had with them.

"If I compared the quality of information against other organisations it was substandard.

"I met the [SCF] board four to five times a year but was reporting to my board weekly, almost daily [about SCF]."

Former Southbury director and Scales Corporation chief executive Andrew Borland also testified yesterday. Scales was owned by Southbury but was sold in the receivership of SCF.

Scales has a diverse ranges of interests, including apple orchards, apple juice, a cool store, a pet food division and a shipping business.

He resigned as a director from Southbury.

"I was getting increasingly concerned about the situation and the explanation from Allan [Hubbard] about the borrowings it had, including borrowings to Aorangi [Securities, Mr Hubbard's private investment company]. There were discrepancies and his avoidance of straight answers."

Kelt Finance was also a concern, he said, with 75 per cent of it owned by SCF. He discovered Kelt had loaned money to Southbury.

"I said you silly bleeping idiots, you will have to reverse that. They said it would be washed out in the recapitalisation but I don't think that happened."

He continued to attend SCF board meetings at the request of Hubbard and was part of the credit control team set up. He agreed this was an attempt to "rein in Mr Hubbard's credit transactions".