Impaired loans surged

Last updated 05:00 27/03/2014
South Canterbury Finance fraud case
MYTCHALL BRANSGROVE/Fairfax NZ
IN COURT: Arraigned in the dock at the start of the $1.58b South Canterbury Finance fraud case, from left, are Edward Sullivan, Robert White and Lachie McLeod.

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Impaired loans at South Canterbury Finance (SCF) ballooned from $61 million to $302m in 15 months before the company's collapse, the High Court in Timaru has been told.

Former SCF chief executive Lachie McLeod, and former directors Edward Sullivan and Robert White, are on trial before Justice Heath, facing a combined 18 charges laid by the Serious Fraud Office.

SCF collapsed in August 2010, with $1.58 billion of taxpayers' money paid to investors under the government retail deposit guarantee scheme.

Yesterday Trustee Executors director Yogesh Mody gave evidence. Trustee Executors was the trustee for SCF.

Mr Mody said he contacted the board with concerns about the number of related party transactions, in particular loans given to senior managers, which he said McLeod dismissed.

In June 2008, impaired loans were at $61m, which grew to $180m in March 2009 and $302m by September 2009.

In a business review it was resolved to downsize the loan book from $2.2b to $1b.

"I was becoming less comfortable relying on anyone's [from SCF] correspondence and this was reflected in the increased communication I had with them.

"If I compared the quality of information against other organisations, it was substandard.

"I met the board [of SCF] four to five times a year but was reporting to my board weekly, almost daily [about SCF]."

Former Southbury director and Scales Corporation chief executive Andrew Borland also gave evidence yesterday. Scales was owned by Southbury but was sold in the receivership of SCF.

Scales has diverse interests - apple orchards, apple juice, a coolstore, a pet food division and a shipping business.

Mr Borland resigned as a director from Southbury.

"I was getting increasingly concerned about the situation and the explanation from Allan [Hubbard] about the borrowings it had, including borrowings to Aorangi [Securities, Mr Hubbard's private investment company]. There were discrepancies and his avoidance of straight answers." Kelt Finance was also a concern, Mr Borland said, with 75 per cent of it owned by SCF and 25 per cent by Sam Kelt. He discovered Kelt had lent money to Southbury.

"I said you silly bleeping idiots, you will have to reverse that.

"They said it would be washed out in the recapitalisation but I don't think that happened."

He continued to attend SCF board meetings at the request of Mr Hubbard and was part of a credit control team.

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