Irony in Allied Nationwide collapse

OPINION: There is no shortage of irony in the receivership of Allied Nationwide, the latest finance company to collapse.

Its owner, listed company Allied Farmers, could have tipped in more assets to keep Nationwide afloat but did not. The weakest link, Nationwide was cut loose and left for rescue by the taxpayer.

For its owners to jettison their responsibilities so casually could look callous, except they have experienced plenty betrayal of their own - Allied Farmers is 98 per cent owned by the people who invested in Hanover Finance and its sister United.

It was for their sake, said Allied managing director Rob Alloway, that Nationwide was let go.

"Allied Farmers has been asked to support its finance subsidiary with levels of funding that we cannot sustain,'' he said.

"We believe the assets of Allied Farmers, including those acquired in the Hanover transaction, are best utilised for the benefit of our shareholders, [and] most investors in Allied Nationwide Finance would have their principal and interest covered by the existing Crown Retail Deposit Guarantee Scheme.''

Thus the bedraggled survivors of SS Hanover clung grimly to the lifeboat and rowed away from the victims of SS Nationwide in the water.

Alloway's statement was accompanied by the announcement of chairman John Loughlin's resignation.

While this can be read as a chairman accepting responsibility for failure, well-placed sources say it may also indicate the outcome of a boardroom bust-up over how to deal with Nationwide. Alloway, the entrepreneurial executive, wanted to avoid using Allied's diminishing assets on Nationwide, while Loughlin argued for its defence, they say.

Discussions around the board table have been "robust'' as the saying goes.

The situation came to a head last week as payments fell due on Nationwide's stock and Allied found itself passing out millions in cash to meet those obligations until, last Thursday, it didn't. The missed payments were said to amount to less than $1m.

Certainly, Allied has used a range of techniques to reinforce its subsidiary's rusty balance sheet, but the sheer fragility of SS Nationwide seems strange when you look at what directors said about it on March 31.

On that day they signed off financial statements saying they expected Nationwide would have net income of $62.5m in the six months to June this year. This was made up of expected receivables of $154.7m, versus expected payables of $92.2m.

It was these numbers that management used to manage the company's liquidity - and they were not even close.

Amazingly, even half way through the period directors were apparently not able to perceive this analysis was wildly wrong.

Most likely, the main culprit was an excessively optimistic forecast of how much investors would roll over their stock, despite ample evidence investors were more like rats quitting a sinking ship.

Perhaps directors really are the last people to know a company is going belly-up, yet the optimism presented in the liquidity profile contrasts with the measures they put in place to bale out the company such as the $5m "credit enhancement facility'', extended to $10m on June 1, eight weeks after the expectation of a $62.5m liquidity surplus was signed off.

In one sense, Allied Farmers is less shaky without Nationwide, but Hanover investors must be far from confident their lifeboat has a doughty Captain Bligh at the helm.

- © Fairfax NZ News