Allied shock at Hanover loan pardons

Rob Alloway

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HANOVER FINANCE forgave personal guarantees and loans in the run-up to the transfer of its loan book to Allied Farmers, says Rob Alloway, the man now trying to turn the mess of loans into hard cash.

Alloway, Allied Farmers' chief executive, is on the warpath after last week having to write down a loan book supposedly worth $396.2 million in October, to just $175.5m.

"There were two borrowers involved and several days before the transaction settled they were released from their personal guarantees in the project which is just mental. Why would you do that?"

One personal guarantee was for more than $20m and the other for "several hundred thousand", Alloway said.

He said there was no commercial reason he could think of for doing it, particularly for such a large portion of Hanover's loan book. He said it smacked of "looking after your mates before you jump off the ship".

"Some of these things we did not know about until after [the deal was done]," Alloway said. "We called those two borrowers in, and they were smiling like cats."

Alloway said he believed the relationship between finance companies and some borrowers had been too cosy. "I think this is more of a systemic thing that has been running and is not just associated with Hanover, but other finance companies as well."

He said: "If you have got a personal guarantee in place to the bank for a loan, you would never be called in and told it had been forgiven and told, `You owe us the money, we trust you will pay it back so we have forgiven the personal guarantee'.

"That just doesn't happen." Allied had asked "authorities" to review the transactions.

Brian Henry, chairman of Hanover Finance and head of its credit committee, said: "I don't really know what he [Alloway] is talking about." One personal guarantee was forgiven, but it was part of a settlement designed to achieve the best return possible.

"It was a relatively small amount. It was part of doing another small transaction that Hanover was involved in in terms of a loan settlement." Henry said he had not been contacted by anyone from any regulator or law enforcement agency. Fellow Hanover Finance director Desmond Hammond had no concerns: "It was business as usual. Rob makes big statements like that, but there's very little fact."

Hanover director Mark Hotchin told the Sunday Star-Times two personal guarantees were released in the days before the loans were transferred.

But he said: "Nobody just gets released for no reason. One was reduced as part of an overall settlement package. There's nothing untowards about it, but I am surprised Alloway is going going public and speaking to the press before he has talked to me about it." He added: "It wasn't two to three days. One was shortly before, the other was a reasonable period of time before, a couple of weeks."

Alloway said Allied Farmers would be merciless in pursuing all personal guarantees, in some cases to ensure a measure of justice is meted out. "Even if we get back 5% of the value of a loan from a borrower or we stop them from doing something similar again for a while, we will feel vindicated."

"If we have got a borrower that owes us a substantial amount of money, but hasn't got the means to pay, irrespective, we are going to do a public service and make sure he doesn't cause a nuisance to anyone else. Someone's got to be the Lone Ranger here."

Allied Farmers has just hired a $750-an-hour QC and Alloway vowed: "None of these borrowers is going to escape."

THAT SHRINKING FEELING

HANOVER AND ALLIED FARMERS

July 2008: Hanover Finance (and United Finance) suspend debenture redemptions.

Dec 2008: Investors vote through the moratorium under which they are told they will get all their money back. Hanover's loans and investments are valued at $600m.

Nov 2009: Hanover tells investors they'll get back 70 cents in the dollar.

Oct 2009: The Sunday Star-Times reports that Allied Farmers is looking to acquire Hanover's loan book.

Dec 2009: Hanover debenture investors swap their debentures for shares in Allied Farmers. Hanover's loans are valued at $396.2m.

March 2010: Allied Farmers writes down the value of the loans to $175.5m.

- © Fairfax NZ News