The choppers, the finance firms and the missing millions

Photo: Daily News

Helilogging director Mark Ford acknowledges that the company's debt contributed to the failure of three finance companies, including LDC, below, but says the CAA's refusal to issue the necessary licences was crucial.

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THE RECOVERY of millions of dollars owing to investors in two failed Nelson finance businesses is turning from an ugly mess into a legal quagmire amid deepening suspicion over several transactions leading up to their collapse.

Finance company LDC and local partnership F&I failed in 2007, owing investors a collective $37 million. Two years on, with $25m still owing, LDC's receiver, PricewaterhouseCoopers, is under increasing pressure over its handling of the receivership as F&I investors take legal action and both firms' huge exposure to a risky helicopter venture comes under scrutiny.

Much about the murky affairs of these two firms would probably remain unknown were it not for the activities of several investors in F&I, who have fought to overturn what they see as unfair dealing by LDC and PricewaterhouseCoopers. The latest move has come from F&I's "informal trustees" Stephen Eaton and Seddon Marshall, who have sued LDC to recover $8m they say rightfully belongs to F&I.

In their statement of claim, Eaton and Marshall say the directors of LDC, which owed mum and dad investors around $21m when receivers were appointed in September 2007, were aware when they did a deal with F&I in early 2007 that it had raised its money without a prospectus and that the money should have been given back to depositors.

That meant the deposits were "subject to a trust in favour of the depositors", they say, and LDC had knowingly assisted in the breach of trust by F&I's two directors, Andrew Harding and Murray Scholfield, when they agreed to swap $4m of F&I loans for shares in LDC.

That money, and the proceeds of other loan recoveries under dispute and accrued interest, now totals just over $8 million. It is being held in a trust account by LDC and should therefore be returned, Eaton and Marshall claim, to F&I investors.

Complicating matters is a loans for shares deal between LDC and F&I designed to keep both firms afloat as their finances hit the skids – a deal on which PricewaterhouseCoopers acted as adviser to LDC.

Harding and Scholfield claim they agreed to the loans for shares swap based on "misrepresentations" by LDC and felt pressured into accepting it for fear of being jailed for raising money without a prospectus.

None of PricewaterhouseCoopers' reports to LDC's investors reveal that it was involved as an adviser to LDC on the loans for shares deal, although they do show the disputes have cost $555,394 in legal fees so far, on top of receivership fees of roughly the same amount.

The legal actions have led to growing unrest among LDC investors and one Nelson woman is trying to get a group together to press their trustee, Perpetual, to hold a meeting to answer investors' questions.

Lesley Haddon says her appeal for a meeting was rebuffed. "Perpetual quibbled over the cost of getting a meeting together, which would have cost about $1000. It makes me wonder what their priorities are and what they are there for."

A "part-time supermarket worker practically on the minimum wage", she said she felt she was being kept in the dark. "I do not know what they have been doing behind the scenes, but they have sent us a letter once every six months saying there's no change. It has not been very enlightening."

Perpetual told the Sunday Star-Times that any investors with questions could call the trustee directly.

As the squabbles continue, what brought the two companies down is a source of much speculation fuelled by one contentious account, which PWC and Perpetual have dubbed inaccurate, circulated widely in Nelson. It is the so-called Mytton Report, commissioned by F&I investor Peter Mytton and written by consumer advocate Dermot Nottingham.

One issue seems beyond dispute, however: that risky loans made to Taranaki company Helilogging, through another finance company called Halifax Finance, played a big part in the firms' demise.

In a judgement allowing Eaton and Marshall to pursue their lawsuit, associate judge John Faire noted: "Both the plaintiff partnership [F&I] and LDC were concerned at their exposure caused by the failure of Halifax Finance Limited" in the run-up to the loans for shares swap.

Strangely, although LDC is in receivership, Halifax Finance is not, and has not been mentioned in the receiver's reports to LDC's investors.

PWC would not comment on why Halifax, run by Paul Brownie of Nelson, had so far escaped receivership, though Harding and Scholfield say they are pursuing a bankruptcy claim against Brownie through the district court.

Why PWC had not moved against Brownie was, Harding said: "The million-dollar question."

Companies Office records show LDC and F&I both had security agreements with Halifax, although they excluded certain assets in an undisclosed agreement dated July 27, 2006.

One private investor in Halifax said he had given up hoping to recover money he had invested on behalf of church charitable trust Word of Life.

Tom McIvor, who invested without seeing a prospectus for Halifax Finance (none appears to have been lodged with the Companies Office) said: "We have given up [hoping for any money back], but he [Brownie] still keeps in contact with me."

McIvor said an email from Brownie in November last year talked about getting investors their money back through a legal action seeking $20m-$30m from the Civil Aviation Authority for "serious wrong doings" (sic) in not granting licences for the Helilogging Wessex helicopters to lift logs commercially.

Without licences, Helilogging could not service the loans..

The Star-Times could not reach Brownie for comment, but Stratford businessman Mark Ford, sole director of Helilogging, admitted the helicopter loans were behind the collapse of the three finance companies, saying the debt at the end to the three finance companies was in the region of $10m.

He also said he had acquired the helicopters from another Halifax borrower and had paid over the odds to cover that customer's debt.

Ford, who says he still has three of the helicopters, said efforts were made by LDC to sell them in the run-up to appointing receivers, including hosting a delegation from Africa interested in buying them, but he said he believed more effort should have been put into forcing a judicial review of the CAA's decision.

"These two Indians came over here from Kenya or some bloody place out there and [LDC] entertained them for three days," said Ford. "They were going to pay big money."

Ford said PWC had made a verbal agreement to pay for the suit against the CAA, but there was a hiatus while awaiting an investigation by the office of the auditor-general into CAA's refusal to issue the licences.

A spokesman for the office said it was making preliminary inquiries into whether it can carry out a formal inquiry.

The CAA said it was unaware of any audit or litigation and rejected any suggestion its decision on the Wessex licences was reached improperly.

THE PROTAGONISTS

LDC FINANCE - Nelson-based finance company run by David Miller, Christopher Hardiman, Kevin Elliott and John Jannetto. Placed in receivership September 2007. Of $21m owing to investors, $9.1m has been repaid so far.

F&I - Nelson-based partnership run by Andrew Harding and Murray Scholfield. Of $16m owing to investors, $1.3m has been repaid so far.

PRICEWATERHOUSECOOPERS - Receiver of LDC Finance

HALIFAX FINANCE - Nelson-based finance company lent money by LDC and F&I Not in receivership

HELILOGGING HOLDINGS - Taranaki company run by Stratford-based Mark Ford Placed in receivership October 2007 On receivership, LDC and Halifax were unsecured creditors owed $8.7m.

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