Set up by Lachlan Williams and Scott Macaw and used by off-shore investors to park European property holdings, Kiwi Deposit Building Society is insolvent with Society banking customers getting back less than sixty cents in the dollar on their $26 million deposited. Off-shore investors complain their property investments have been snatched off them.
Taking advantage of wider latitudes now allowed under the Building Societies Act, Kiwi Deposit was set up in 2009. In what was a bespoke operation, Williams and Macaw were the driving force behind 19 of the 20 corporates signing up as founding Society members. The twentieth was Aequus Trust Pte Ltd, based in Singapore. Kiwi Deposit’s auditor was signalling potential cashflow difficulties as early as the Society’s 2010 annual report.
Society membership was sold to off-shore investors on the basis that they could hold ‘tracking shares’ which linked returns to specific assets. Danish interests took up tracking shares tied to property interests they owned variously in Sweden and England. A Swiss asset management company fronted for the true owners. The ultimate beneficial owners have not been disclosed.
The High Court was told Kiwi Deposit management decided to dissolve the Society in 2013. The dissolution resolution stated that Kiwi Deposit was solvent. It appointed Paul Sargison and Simon Dalton as trustees to wind down the business. They found much of the Society’s assets were tied up in unsecured loans and shareholdings in unprofitable overseas businesses. Offshore property holdings tied to Danish tracking shares were sold off. The Society proved to be insolvent with insufficient funds to repay in full Society creditors, including its depositors, with no return for Society members which includes those holding tracking shares.
The Danish interests sued, alleging they had first claim on sale proceeds from ‘their’ property holdings. Associate judge Bell ruled Society creditors had priority. Off-shore property assets were owned by the Society. Danish investors’ rights were as members of the Society through their holdings of tracking shares. As shareholders, the Danish interests ranked behind Society creditors. It made no difference that Kiwi Deposit is being dissolved, rather than liquidated. Attempts to liquidate the Society have proved fruitless; a member resolution is not possible because a majority of corporate members have been struck off and no longer exist, and no creditor has taken steps to force liquidation.
Danish investors can proceed with their claim alleging trustees sold property assets at an undervalue, Judge Bell ruled. But any proved shortfall recovered will go first to Kiwi Deposit creditors still unpaid, not the Danish investors, he pointed out.
re Kiwi Deposit Building Society – High Court (5.10.18)
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