Out of the wreckage of South Canterbury Finance, government sold to interests associated with failed property developer David Henderson the right to claim in the insolvency of one of his Christchurch property developments. In dispute is up to five million dollars currently in the pocket of BNZ.
The High Court was told Mr Henderson was adamant Bank of New Zealand were not to be told of his renewed involvement in Tuam Ventures Ltd when FTG Securities Ltd, having his wife Kristine Buxton as director, paid government $100,000 to buy up a second ranking security over 179 Tuam Street; Tuam Ventures main asset. Tuam is in receivership and liquidation, insolvent. Mr Henderson is prohibited by court order from having any role in managing a business until December 2022.
Byzantine funding arrangements for development of 179 Tuam Street were spelt out in court. Back in 2005, Tuam Ventures as part of Mr Henderson’s then property empire, borrowed from Canterbury Finance Ltd giving it a first mortgage security over 127 Tuam Street in central Christchurch. Canterbury Finance conceded priority to BNZ after a further funding was required in 2007; a deed of subordination and priority promoted BNZ to first ranking security with priority for the sum of $7.5 million plus two years’ interest. Canterbury Finance agreed to rank second for the next ten million dollars plus interest. The priority deed prohibited each financier from transferring its interest without agreement. Since then: Canterbury Finance’s second-ranking interest was transferred, without BNZ agreement, to government as part of the 2008 taxpayer bailout of South Canterbury Finance Ltd and then on-sold to FTG Securities for $100,000, again without BNZ agreement, as government looked to sort out the mess; 179 Tuam Street was savaged by the collapse of Mr Henderson’s property empire then the series of Christchurch earthquakes; and BNZ collected over twelve million dollars from its mortgagee sale of 127 Tuam Street and earthquake insurance payments. FTG Securities alleges BNZ has taken up to five million dollars more than its entitlement under the priority deed. This belongs to FTG Securities, it claims.
The Court of Appeal ruled FTG Securities has no standing to sue. Failure to get approval as required by the deed of priority for its purchase of what was Canterbury Finance’s interest in Tuam Ventures was fatal. This is not just a technical point, the Court of Appeal said. Commercial players are free to prohibit assignment if they wish, it said. It is open for FTG Securities to seek BNZ approval to stand in the place of Canterbury Finance before taking legal action to enforce its claimed rights against BNZ. The priority deed says approval by BNZ cannot be unreasonably withheld.
FTG Securities Ltd v. BNZ – Court of Appeal (20.02.19)
19.044