NZF
Money Ltd investors might see more than the 25 cents in the dollar already paid
out after receivers from KordaMentha clawed back a further $1.8 million with a
High Court ruling denying rival creditors claim to priority.
At issue were securities agreed by NZF Money in
what amounted to a commercial panic in October 2010 as the government guarantee
scheme was due to expire and NZF faced a severe liquidity crisis with
receivership looming. As a “second-tier”
lender, NZF Money was critically exposed with a badly impaired loan book. Refinancing its own debt was going to be
difficult as investors flooded out of the company at the conclusion of their
government guarantee. The High Court was
told NZF Money operated on razor thin liquidity when the government guarantee
ended on 12 October 2010: $3.93 million was available to meet $3.86 in payments
flowing out. Of the cash available, $3.2
million came from credit facilities cobbled together at the last minute in
three so-called security sharing arrangements.
Funds came from the Hillview Trust, controlled by NZF Money director Pat
O’Connor.
NZF Money went into receivership in July 2011
with insolvency specialists KordaMentha appointed receivers. Hillview argued it was entitled to $1.8
million out of the receivers’ realisations, ahead of any payout to
investors. At issue was the status of
the October 2010 security sharing arrangements.
Hillview had priority if the arrangements were made “in the ordinary
course of business”. Failing that, investors
had priority.
Evidence was given that the term “security
sharing” was something of a misnomer.
The Hillview securities claimed to take priority over assets previously
secured by a trustee debenture protecting the interests of investors. This could be done if the trustee for
debenture holders gave consent. No
consent was given. Alternatively,
priority would follow if the arrangement was “in the ordinary course of
business”.
Justice Fogarty ruled the arrangement was
not. NZF Money had not entered into such
deals in the past. The situation was so
urgent that the funds were advanced before documentation was completed. It was telling that Mr O’Connor, who was
already an investor in NZF Money for some $1.8 million, was willing to commit a
further two million through Hillview Trust but only with some solid mortgage security
from NZF Money.
Claims by Hillview Trust for repayment rank
behind payments to investors.
Gibson
v. Robert Burnes Trustee (2009) Ltd – High Court (15.05.15)
15.048