Attempt made to remove Hubbard
The workings of South Canterbury Finance's boardroom have been relayed in court today, including an attempt to remove chairman Allan Hubbard.
Former South Canterbury Finance (SCF) chief executive Lachie McLeod and former directors Edward Sullivan and Robert White have pleaded not guilty to 18 individual and combined fraud charges laid by the Serious Fraud Office in December 2011.
SCF collapsed in August 2010, with $1.58 billion of taxpayers' money paid to investors under the Crown Deposit Guarantee Scheme.
The trial began last Wednesday in the High Court at Timaru before Justice Paul Heath. It is set down for four months.
Stuart Nattrass, the first witness to be called, was a director of SCF from 2002 to 2009. He told the court that because SCF chairman and chief financial backer, the now deceased Hubbard, was quiet during board meetings Sullivan took the lead and determined the way a minute was recorded.
Sullivan was also the sole source of legal advice.
"Several times I said external advice may be helpful, but Mr Hubbard would always be unwilling to pay for services other than those Ed was making available," Nattrass said.
McLeod was appointed by Hubbard as the chief executive without consultation with the board. Nattrass said he had pushed for external directors to be appointed to the board.
"Mr Hubbard indicated he had generally entertained the idea," he said. "When other names were mentioned, Mr Hubbard always had an issue with the names put forward [for a director role]."
In July 2007, Nattrass, Sullivan and White met at Sullivan's house to discuss removing Hubbard from his position as chairman because he had been unwell and went on to require dialysis.
"I felt in conversations with fellow directors there was a need to move Mr Hubbard on, but this was a personality based business, a great deal of investment was there because of Mr Hubbard's reputation," he said.
"Removal of Mr Hubbard in a cold hard coup could have put that at risk."
Loans that became stressed were often taken over by SCF rather than insolvency proceedings being started.
"Mr Sullivan or Mr McLeod would be assigned to the business and report back to the board," Nattrass said. "Records were kept by Mr Hubbard's own ledger which he took responsibility for."
Nattrass said that when he joined SCF it held $400 million in assets and by 2007 it was $1.4b.
"A business that grows that size really must change its processes and systems," he said. "I don't believe we acted fast enough on that."
The trial continues this afternoon with Nattrass expected to be on the stand for the rest of the week.