Courts hangover follows debt binge

The figures show how even the higher echelons of New Zealand society are struggling.

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THERE WAS no let-up in the rate at which finance companies dragged defaulting debtors into court in the eight months to the start of December.

Just over 4800 people were hauled in front of district courts to have summary judgements recorded against them for unpaid debts owed to finance companies, a symptom of the damage done by New Zealand's credit boom and bust.

In many cases the judgements, most for less than $10,000, will be the first step towards bailiffs arriving on the doorstep and eventually bankruptcy for delinquent debtors.

That figure compared with the nearly 4000 who received similar judgements in the 6 1/2 months to mid-April, indicating there was no overall slow-down in the pace at which debtors were held to account by lenders.

New Zealanders went on a credit binge in the past decade, which, when combined with mortgages, resulted in the average household debt spiking from 74% of disposable income in 2000 to 177% in 2008, though in many cases it was much higher.

Topping the chart for judgements sought and awarded against debtors was once again Evolution Finance, the debt-collection arm of listed company Cynotech run by Allan Hawkins.

Hawkins was chairman of Equiticorp, the most notorious of the listed companies which collapsed in the 1987 sharemarket crash, and he served time in prison after being found guilty of fraud.

Evolution sought and received 571 judgements from the courts, though once the figures for sister companies Cynotech Securities, Cynotech Finance and Budget Loans are taken into account, Hawkins' firms were awarded 752.

Cynotech is currently collecting the remaining car loans of failed finance firm Provincial Finance, which it bought from receivers, and is shopping around for other books of consumer loans to buy and chase.

The total even topped the combined 694 judgements sought and awarded to Financial Holdings and Jade Financial Services, the two debt collection companies of the Oldham family, which also own Beneficial Finance. Beneficial was one of the earlier finance companies to collapse, owing mum and dad debenture investors millions, but it is on track to pay them all back under moratorium.

Third place was held by Moneyshop, a private finance company which lends to lower-income people, and is funded by "factors" – wealthy individuals and habitual investors – meaning it does not have to issue a prospectus to the market revealing the state of its finances. It received 323 judgements against its debtors.

The top 20 of the 140 mostly small and private finance companies which dragged debtors to court also contained some very topical names, including Allied Nationwide Finance, which secured fourth place. It is the finance company of NZX-listed firm Allied Farmers, which late last year pulled off an audacious loans for equity swap to secure the loan books of Hanover Finance and United Finance.

Mark Hotchin and Eric Watson just squeaked into the top 20 list with consumer lending firm FAI Finance (now FAI Money, which has recently changed its trust deed to allow it to make property loans). The pair bought FAI from Hanover before the deal with Allied Farmers.

The figures show used-car loan financier Broadlands Finance significantly increased its court action as it fights for its commercial life. Despite high loan default levels, the privately owned firm managed to get coverage under the Treasury deposit guarantee scheme and is seeking a credit rating so it can qualify for the extended Treasury scheme to be introduced in October.

Broadland's 254 judgements beat Geneva Finance into sixth place, with the NZAX-listed firm slowing the rate at which it took court action, something that reflects assurances from management that they are getting on top of bad debts.

The banks were all active in pursuing largely smaller consumer debts. Westpac, BNZ and ANZ sought and received 380 judgements. ASB obtained 38 and Kiwibank just one.

One surprise was the increased use of the courts by the credit unions – grassroots, mutually owned banking organisations which have a mission to help poorer Kiwis to save. In the previous six months, they obtained 76 judgements, compared to 172 in the latest period.

The latest annual report of the Association of Credit Unions shows member unions were struggling with rising bad debt levels resulting in cost-cutting, including a decision to forgo staff and board pay increases.

GE Finance and Insurance, the New Zealand lending arm of giant US firm GE Money, sought fewer judgements. GE found itself attracting unwelcome headlines over the loans its companies made to help naive investors buy apartments from Blue Chip, and the demise of its mortgage-lending business Wizard.

Outside the top 20 were a wide range of lenders, indicating how even some of the higher echelons of New Zealand society are struggling. Mercedes-Benz Financial Services, for example, obtained 25 judgements and charge card company Diners Club got 37.

There were also several controversial names including Club Finance, a used-car loan financier, which looks to have lost in the order of $58 million for investors in the failed First Step investments sold by Money Managers (now MMG). It got 36 judgements.

Also represented was Hopscotch Money, the finance company set up to lend to Chrisco customers.

Other lenders represented include the likes of the door-to-door "mobile shops" which sell high-priced products such as nappies, clothes and food which the buyer pays for gradually.

It is not just finance companies which pursue delinquent debtors. Telecom, the power companies, local councils and water utilities all turn to the courts as a last resort.

The figures, are issued by the district courts and compiled by MG Business, cover about 90% of debtor judgements delivered. They cannot be considered a definitive record of which finance firms have been most aggressive in pursuing debtors, but do provide an insight into some of the most active.

- © Fairfax NZ News