Focus goes on possible breach of trust deed

A key transaction under scrutiny in the South Canterbury Finance (SCF) trial was used to pay a portion of the $10.8 million required to get a resource consent for the Central Plains Irrigation Scheme.

The trial of former SCF directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod, continued yesterday before Justice Paul Heath in the High Court in Timaru, with expert witness Grant Graham cross-examined by Sullivan's lawyer, Marc Corlett. His cross-examination is expected to be finished on Tuesday, having been on the stand all week.

Graham is a partner in investment company Korda Mentha and was engaged by the Serious Fraud Office (SFO).

He discussed a loan to Dairy Holdings chairman Colin Armer which the Crown said breached SCF's trust deed. As a result McLeod faces a charge of theft by a person in a special relationship, as he is alleged to have structured the loan to circumvent the trust deed.

The trust deed states that SCF cannot have exposure to one individual or group of more than 35 per cent of shareholders' funds. In June 2009 that equalled $79 million.

Armer and former SCF chairman Allan Hubbard formed Dairy Holdings (DHL) in 2001 in partnership with Alan Pye and three American shareholders.

In 2008 SCF purchased Hubbard's shares in DHL, which owns dairy farms throughout the South Island, for $75.5m.

A loan was advanced to Armer for $14.5m. The Crown argues that as the loan was essentially for DHL, it put SCF's exposure at $90.2m, well over the trust deed's limit of $79m.

Graham said the credit facility was used by Dairy Holdings.

Corlett said the loan was advanced to an unrelated party. A funding facility of $1.7m in 2007 was to go toward consent costs for the Central Plains Irrigation Scheme. A memo to SCF directors said, "with Dairy Holdings' significant land holdings in Mid Canterbury, it has a vested interest in the irrigation scheme coming to fruition.

"DHL is in the process of signing a loan agreement with Central Plains Water Trust and shareholders."

All up $10.8m was required to get the consent.

The trial continues on Tuesday.

The Timaru Herald