Concern prompted SCF exit

Concerns around related-party lending and a $1 million public relations budget led South Canterbury Finance (SCF) general manager of funding Kevin Gloag to resign after 30 years at the company, the High Court at Timaru has heard.

It was also revealed at the SCF trial yesterday that late chairman Allan Hubbard had a practice of topping up his private investment clients with his own money.

Former SCF directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod are on trial in the High Court at Timaru in front of Justice Paul Heath. The trial yesterday adjourned until July 21 due to the next witness being overseas and unavailable.

McLeod remained at the back of the court yesterday with a face mask and suspected whooping cough.

The cross-examination of former SCF chief financial officer Graeme Brown wrapped up yesterday. He was asked about an email on June 18, 2009 from Gloag, detailing a letter from an investor in Wellington, Elizabeth Barr, who was concerned about two articles alleging "related party loans and/or other dubious business loans".

"This letter summarises my position perfectly and the reason for my resignation," Gloag wrote.

"Given that it may compromise my integrity, can I confidently and honestly tell her that we have a structure and business practices in place to protect her money going forward in our current state of health?"

Brown said Gloag was of the view "that management relationships and board relationships had become dysfunctional and after 30-odd years he was looking at doing something else".

He did not leave until early 2010.

"The final straw was that the board had given Mr [Sandy] Maier [the then chief executive officer] $1m to engage public relations people to attract new investors to SCF."

Brown admitted his evidence had changed. When he was interviewed by the Serious Fraud Office in 2011 he said the Kelt transaction - in which a loan of $10 million was transferred from SCF to Kelt Finance and then advanced to SCF parent company Southbury - was McLeod's idea, but on the stand last week, he said it was his.

"Only over the fullness of time that I have fully reconstructed the events."

In 2009 Brown sought legal advice on Hubbard's Aorangi Securities, which had over 400 investors, owed $115m.

An email from lawyer Hugh Kettle said, "Aorangi investors are paid a fixed interest of 9 per cent. Hubbard has been topping up Aorangi from his own funds".

"If the [Securities] Commission finds out [about Aorangi] from another source it will become ugly quickly."

In June 2010, Aorangi was placed in statutory management.

Justice Heath said he had the impression "Mr Hubbard could never get through the barrier of it being a closely held company to a public company."

Brown said Hubbard "struggled with compliance".

"I guess the shame is Mr Hubbard won't be giving evidence."

Brown said he reported to McLeod.

"Lachie was my manager and to be honest I was a bit of a prima donna while I was there. Mr McLeod probably had a bit of challenge in terms of me."

The Timaru Herald