Fraud trial calls final witness

Last updated 05:00 29/07/2014

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The final witness has given evidence in the long-running South Canterbury Finance trial.

The trial of former SCF directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod continued yesterday before Justice Heath in the High Court at Timaru.

It has now been adjourned until tomorrow to allow the lawyers to prepare their closing addresses.

Chartered accountant John Hagen chaired the Accounting Standards Review Board until 2003. He gave evidence for the defence on whether key transactions, were related-party or "material" transactions.

A material transaction, he said, was one that, if disclosed, would make the investor form a different opinion. In terms of SCF, Hagen defined transactions over $15 million as material in a company with more than $2 billion in assets. Related-party transactions were given extra attention, he said, because there was the "general presumption that transactions between related parties may not be at arm's length".

Hagen discussed the Shark Wholesalers transaction, in which the company Specialised Sales and Marketing was set up to acquire the Shark inventory in return for a loan from SCF, and Sullivan's brother-in-law was the director of SSM. The Crown has argued he was a puppet director.

"The amount outstanding between Shark and SCF was $166,018. [At the time] the total assets were $738,685,202.

"Compared with the total lending, the amount of $166,018 is immaterial," Hagen said.

He accepted Shark qualified as a related party but said the "nature and amount of the transaction" would not be material to investors.

He gave evidence of the Woolpak transaction, where Sullivan's friend, Ross Lund, was the director of Woolpak, to allow Allan Hubbard to acquire shares in Wool Services International without triggering the takeover code.

It is argued Woolpak was under the control of Sullivan and a related party.

Hagen said the $6.9m advanced to Woolpak was not material in light of the overall loan book of $1b at the time.

He used the same reasoning for the Dairy Holdings (DHL) transaction, where DHL shareholder Colin Armer was loaned $4.2m as a cash facility for DHL but it was under his name to avoid breaching the trust deed.

Hagen did not believe it was a related-party loan.

"In my opinion, because Mr Armer is personally liable for the debt, and because that liability is supported by his personal guarantee . . . this does not make the loans to Mr Armer related-party loans," Hagen said.

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- The Timaru Herald

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