Warnings about bad debts at South Canterbury Finance (SCF) fell on deaf ears, even as the finance company's assets ballooned to more than $1 billion.
SCF asset management general manager Ian Thompson gave evidence in the High Court in Timaru yesterday that when he arrived at the finance company on April 1, 2009, there was no recovery unit.
The evidence came at the end of the fourth week of the fraud trial of former SCF directors Edward Sullivan and Robert White, and former chief executive Lachie McLeod, before Justice Paul Heath.
Thompson outlined his role in setting up the recovery unit.
"Initially I was given 15 files to work with, which owed $35 million. I was to establish a procedure for maximising return on these loans. Within a month it was 25 loans."
By September 2009 he was overseeing 53 loans which owed $257m.
These included loans owing to now bankrupted Christchurch property developer David Henderson. He owed $31m, with $5m thought to be bad debt. Bankrupted Wellington businessman Terry Serepisos was also under review, also thought to be impaired to the value of $5m.
Thompson reported to McLeod and Sullivan.
"I got the feeling they thought my provisioning was too harsh. I didn't think we had scratched the surface."
He outlined his concerns about potential losses SCF faced from its loans in an email to the Sullivan, McLeod, former SCF chief financial officer Graeme Brown and the credit control committee.
"I get comments from Graeme/Lachie that my numbers are tough/worse case scenario and unfortunately I need to remind you this is not the case.
"The purpose of this detailed report is to draw everyone's attention to the numbers, risk and reality of what we have, the real risk is $115m."
In its review in September 2009, auditors Korda Mentha noted the company had $1b in assets tied up in loans and had poor systems and processes. It recommended a capital injection was required as it was facing liquidity issues.
Thompson raised issues about the Hyatt Hotel which owed SCF $45m.
"At various informal meetings I anticipated it would come under my management. There were significant delays and a genuine belief from directors that I was too harsh in my assessment of risk and recovery.
"It was not being treated as impaired as the term hadn't matured although no payments were being made.
"I was aware there were cash flow issues and it (the Hyatt) was struggling to pay interest on its first mortgage."
The trial yesterday centred on reviewing loan documents.
In her evidence, SCF analyst Cara Gregan said that in relation to a number of loans set up by SCF chairman Allan Hubbard, clients were unaware of what their interest rate was or the fact the loans were actually with SCF.
- The Timaru Herald