A company described as a related party was set up to protect South Canterbury Finance's (SCF) interests, the High Court has heard.
In its final days, the trial of former SCF directors Ed Sullivan and Robert White and former chief executive Lachie McLeod has again attracted large numbers of their supporters.
Among the 18 charges, Sullivan and White both face a charge of making a false statement in prospectus 55 on offer in 2004 in relation to Shark Wholesalers.
In 2003 Sullivan's nephew, Geoffrey Sullivan, was the general manager of Specialised Sales and Marketing (SSM), which sold heating appliances. He identified that SSM had a funding problem.
His uncle proposed that a new company, Shark Wholesalers, purchase SSM stock and resell it to SSM as needed. Sullivan appointed his brother-in-law, Peter Symes, as the sole director and shareholder of Shark. SCF made two loans to Shark, so it could buy the stock from SSM. The first loan in 2003 was for $5.2 million and in 2004 it loaned $4.6m.
The Crown alleges both directors made a false statement in prospectus 55 by not properly declaring the loan and identifying it as a related party transaction. Symes, who has since died, is said to have had no active role and was a "puppet" of Sullivan.
Defence counsel Pip Squire QC said the purpose of Shark was to protect SCF's security.
"It was a standard warehousing arrangement commonly used by financiers. Shark had clear and obvious commercial purpose, to provide funds to SSM in order to enable the company to purchase stock for the forthcoming winter season. The company had been refused a further funding facility by its primary funder the National Bank and the Shark transaction was devised in circumstances of urgency."
The structure was to protect SCF's loan, he said.
"It avoided SCF advancing further funds directly to SSM thereby exposing SCF to the consequences of any operating downturn SSM might suffer leading to the National Bank exercising its powers under the first priority security it had."
Symes' role was not sinister, Squire said.
"Having Shark owned by a third party [Mr Symes] lessened the possibility that in the event SSM failed the National Bank might argue that Shark was a mechanism for SCF as second priority lender to prefer itself over the National Bank."
Symes' business experience was immaterial, he said.
"[In evidence] it was claimed that Mr Symes had no relevant experience or no logical interest in the Shark transaction. Those circumstances, if true, do not disqualify Mr Symes from acting as a shareholder and director of Shark as an individual trusted by SCF."
Sullivan and White had an honest, albeit mistaken belief that Shark did not have to be included in the accounts as a related party.
The defence closing continues today and tomorrow.
- The Timaru Herald