A developer who already owed $86 million to South Canterbury Finance (SCF), sought an additional $35m loan to buy the Hyatt Hotel in Auckland.
The trial of two former SCF directors, Edward Sullivan and Robert White, and former chief executive Lachie McLeod, continued yesterday before Justice Paul Heath in the High Court at Timaru. The three face 18 charges laid by the Serious Fraud Office (SFO).
Nigel Davenport was on the witness stand yesterday. He was employed by SCF in October 2005 as the commercial account manager. Previously he had worked for BNZ for 22 years.
In 2008 moves were made to sell the Hyatt Hotel which was owned by Regency Auckland, which was, in turn, owned by SCF's parent company, Southbury.
Davenport gave evidence businessman Neville Mahon became interested in purchasing the hotel. He was surprised as he understood Mahon to already be "well lent" to by SCF.
Overall the hotel owed SCF $64.9m. A valuation from Mahon showed it to be worth $72m, while another valued it at between $52m and $58m.
The company Hilltop Hotels was formed for Mahon to buy the Hyatt from Regency. His consortium already owed $86m and sought to take over the $35m SCF loan to purchase the Hyatt.
"It became apparent he (Mahon) couldn't settle the terms of the agreement."
In 2009, the company Quadrant Holdings was set up to own the hotel. In an email, Davenport said Sullivan's brother-in-law Peter Symes had been "corralled" into being a director of Quadrant. Symes had previously worked as a marketing manager for a meat company.
"He (Sullivan) said it (the hotel) had to be in Quadrant's name so it wasn't a related party. I came from a background of banking and didn't really understand a related party."
The decision were signed off by the directors of SCF, he said.
The Crown argues that the defendants purposely hid related party loans and SCF should not have been allowed into the Crown Retail Deposits Guarantee Scheme in December 2008.
Upgrading the hotel to sell it was also considered. Refurbishment was to cost $15,000 for each of the 278 rooms. It would be labelled as maintenance so as not to trigger a consent which would require sprinklers to be put in.
A $6.5m loan was then sought for the upgrade. By that time in 2009, $39m was owed to SCF. Symes was asked to sign off the overall loan agreement of $45.5m.
Evidence continues tomorrow from Davenport.
- The Timaru Herald