Crown promises 'maximum taxpayer value' from SCF

BY TRACY WATKINS

The Crown is "first in line" to be repaid by receivers for South Canterbury Finance behind those protected by statute, Treasury announced today.

It today moved to reassure the public that taxpayers will get "the maximum value the receiver can recover from South Canterbury Finance" after confirming taxpayers were liable for $1.6 billion in investor deposits.

Acting Treasury Secretary Gabriel Makhlouf said the Crown was facilitating repayment of all of SCF's prior ranking debts along with all debt security holders in order to put itself first in line to be repaid by the receivers.

"The Crown will effectively become the first-ranked creditor in this receivership, behind those protected by statute, which means that we can ensure an orderly and well-managed receivership.  Taxpayers will get the maximum value the receiver can recover from South Canterbury Finance," Mr Makhlouf said.

"This is the cleanest, quickest way to achieve an orderly and well-managed receivership that minimises the cost to taxpayers and minimises the impact on South Canterbury Finance suppliers and the customers it has lent money to," said Mr Makhlouf.

"Without becoming the first-ranked creditor, there was a significant risk that the Crown would not recover as much for taxpayers as it could because of the scale and complexity of the South Canterbury Finance receivership.  By creating the conditions for an orderly and well-managed receivership, we remove pressure from the receiver and protect taxpayers' interests," he said.

DEPOSIT GUARANTEE AND ELIGIBILITY

The Government has also decided today that it will repay all depositors of guaranteed companies that default, including those that have already defaulted, regardless of any previous eligibility criteria that were in place for the Retail Deposit Guarantee Scheme, Treasury said.

"The scale and complexity involved with repaying South Canterbury Finance depositors alters the costs involved in running the guarantee scheme.  Repaying all depositors of all guaranteed companies that default will save taxpayers from having to pay ongoing interest that otherwise would have accrued as thousands of claims were assessed, processed and paid.

"Criteria relating to citizenship and tax residency will no longer apply and depositors will not be assessed using those criteria. The criteria for being repaid is that you are on the register of debt securities at the date of default," Mr Makhlouf said.

Debt securities eligible for repayment include: call deposits, term deposits, non-guaranteed deposits, debentures, and bonds. 

Equity securities such as ordinary shares and preference shares remain ineligible for repayment under the Crown guarantee. 

The Government's decision to repay all depositors of Crown guaranteed financial institutions that have defaulted means repayments will be made to some depositors who may not have previously been eligible for repayment.

The decision applies for defaults by approved institution from the start of the current Retail Deposit Guarantee Scheme started through until it ends on 12 October 2010.

The following eight Crown guaranteed institutions have defaulted: South Canterbury Finance, Allied Nationwide Finance, Mutual Finance, Viaduct Capital, Vision Securities, Strata Finance, and Mascot Finance. 

The Treasury will publish details in due course about the process for repaying previously ineligible depositors.

Eligibility criteria that include citizenship and tax residency will continue to apply in the event of a default after 12 October 2010 by entities approved for the extension to the Guarantee scheme. The extension to the Retail Deposit Guarantee Scheme runs from 12 October 2010 to 31 December 2011.

BROAD IMPACT

The collapse of South Canterbury Finance will affect every New Zealander as taxpayers or participants in the wider economy, Labour finance spokesman David Cunliffe said.

He said the Government had to address serious questions about the decision in April to include SCF in the extended deposit guarantee scheme, giving it cover till the end of next year.

''How long there have been indications of difficulty and distress on the books of South Canterbury Finance and related entities? What information was available to the Government when? What indications of concern did the Government know before it extended the original guarantee and before it extended the guarantee in April 2010?

''What due diligence was done at that time and what information was provided by the company, its auditors and trustees?

''Now that the taxpayer is up for a multi hundred million dollar bill, the Government has an obligation to be as transparent as possible with the public as soon as possible, while acknowledging the need not to further disrupt viable investments by the company.''

ANXIOUS TIME

National MP Jo Goodhew, whose Rangitata electorate covers Timaru, said the failure of South Canterbury Finance would be felt across the region.

''It remains an anxious time for the people in my community. I think that many will take heart knowing that they've been reassured about the government guarantee, and that will certainly assist a large number of people.

''I think now's a time for patience, just to see how the details of what will happen take shape, though it's hard to be patient when you're anxious.''

''It would be fair to say that it doesn't matter where I go in my community, everyone is talking about, and is concerned about, the situation.''

She would not comment on what action she thought the Government should take, saying that was a matter for Finance Minister Bill English.

National MP Jacqui Dean, whose Waitaki electorate covers large areas of South Canterbury, said she would not be commenting.

GUARANTEE TRIGGERED

After the receivership was announced this morning Treasury moved to ease investor fears, assuring depositors and stockholders they will be repaid by the Government.

Mr Makhlouf said the appointment of receivers to the company had  triggered the Crown's guarantee scheme and depositors and stockholders on SCF's register of debt securities were covered.

"Depositors and stockholders do not need to make a claim to The Treasury because the Trustee has made a claim on  their behalf.  All depositors and stockholders on South Canterbury Finance's register will be repaid," Mr Makhlouf said.

He said the Treasury and the Trustee were cooperating to ensure depositors and stockholders who were covered were repaid promptly.

"When an up-to-date register of debt security holders is available, the Crown and the Trustee will arrange prompt payment to everyone on the register. We expect an orderly and prompt payment to South Canterbury Finance depositors and stockholders," Mr Makhlouf said.

He said the arrangement meant some depositors and stockholders who may not have previously been repaid would not be covered by the Crown.

While this would incur an upfront cost, it was cheaper for the Government overall as it allowed immediate payout of depositors and avoided future interest payments.

Interest payments are covered by the guarantee scheme.

South Canterbury Finance has  around 35,000 depositors and approximately $1.6 billion in deposits.

"It is important to remember that the Crown guarantee is not designed to prevent a company from defaulting; it is designed to protect depositors and stockholders affected by a default," said Mr Makhlouf.

- with Vernon Small and Martin Kay

- © Fairfax NZ News