Lawyer 'mystified' by $25m SCF loan
An Auckland lawyer was mystified to receive a letter seeking confirmation of a $25 million loan from South Canterbury Finance's parent company, which he had not agreed to.
The evidence was presented yesterday in the trial of former SCF chief executive Lachie McLeod, and former directors Edward Sullivan and Robert White, before Justice Paul Heath at the High Court at Timaru.
The trio face a combined 18 charges laid by the Serious Fraud Office.
On the stand was Gregory Shanahan, the Auckland lawyer of property developer Neville Mahon, who was approached by SCF to purchase the embattled Auckland Hyatt Hotel.
The Hyatt is one of the key transactions in the trial.
Shanahan was called to a meeting with Mahon, Sullivan, White, McLeod and former SCF chairman Allan Hubbard, who died in September 2011.
"I prepared the agreement for the sale of the Hyatt (in April
2006). "It was $55 million for the shares, to be financed by taking over existing debts to ASB of $25m and Westpac of $2.6m. The balance of the loan of $27.5m was to come from Southbury (SCF's parent company). There would be a further advance of $10m from SCF for the development of the hotel."
Shanahan raised concerns that no due diligence had been carried out, or a valuation. The transaction was to be carried out at speed because Hubbard wanted it off the books by the end of the financial year, he said.
On August 15, 2006, he received a letter from SCF general manager Tim Underdown seeking confirmation that his client had a loan of $25m although a loan agreement had not been signed.
He emailed SCF's Nigel Davenport who told him to disregard the letter. The deal stalled and Sullivan stopped responding, then Mahon heard the hotel was up for tender.
An injunction was taken out against the sale and the parties then resolved to come up with a second deal. This too fell over and SCF agreed in 2008 to give Mahon $800,000 for the work he had done on the hotel.
The advance of $25m that was to be loaned to Mahon for the sale was then put through newly formed company Quadrant, which became the owner of the hotel, with Sullivan's brother-in-law, Peter Symes, as sole director.
Written evidence from the now deceased Symes said he never realised he owned the hotel.
Among other charges, each of the three defendants faces a charge of theft by a person in a special relationship in regards to their dealings in setting up Quadrant.
The Crown alleges that Quadrant was a structure to hide a related party transaction, breaching the deed of the Crown deposit guarantee scheme.
The trial has been adjourned until Monday.
The Timaru Herald