SCF tried to bypass deed, court hears
South Canterbury Finance attempted to call Treasury's bluff on the Crown deed of guarantee, the High Court has been told.
Former SCF directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod face a total of 18 charges brought by the Serious Fraud Office following SCF's $1.58 billion collapse in 2010. The trial is being heard by Justice Heath.
Crown lawyer Colin Carruthers QC covered off counts five, six and seven yesterday.
Count seven relates to the Crown deed of guarantee.
The guarantee was a result of the global financial crisis, with the Government guaranteeing deposits to stop a run on investments.
Under the deed, the company could not enter into any transaction over 1 per cent of SCF's assets unless it was on arm's-length terms and not with a related party.
Sullivan, White and McLeod face a charge of theft by a person in a special relationship due to a loan of $25 million to Quadrant to buy the Hyatt Hotel, which the Crown argues is a related party transaction and was over 1 per cent of the company's assets.
Quadrant's sole director was Sullivan's brother-in-law, Peter Symes. The Crown contends this was to conceal a related party, with Sullivan actually in control of Quadrant.
Carruthers said the three accused discussed the 1 per cent limit and chief financial officer Graeme Brown emailed White and suggested they call Treasury's bluff and say they could not enter the Crown guarantee, in an attempt to have the 1 per cent clause altered. They went on to enter the guarantee. McLeod emailed White and said: "Major problems doing anything over $20m unless proposal can be taken outside the Crown related party barriers".
Sullivan is charged with count six, which also focused on the $25m, which the Crown says breached SCF's trust deed as it was lending to a related party at more favourable terms.
Count five focused on a loan to Dairy Holdings chairman Colin Armer, which the Crown said was a related party transaction, but it was not declared in prospectus 60.
As a result Sullivan faces a charge of making a false statement. Armer and former SCF chairman Allan Hubbard formed Dairy Holdings in 2001 in partnership with Alan Pye and three American shareholders.
A funding shortfall had to be covered. A loan was advanced to Armer personally for $12m, to avoid breaching the trust deed.
The Crown argues that as the loan was essentially for Dairy Holdings, it was actually a related party. The judge questioned this, as Armer was personally liable for the loan and when SCF went into receivership he was liable for the outstanding balance of the loan.
Contrary to other directors allegedly being used as puppets, he did not have indemnity and was involved in the business, the judge said.