South Canterbury Finance has requested the company be put into receivership:
SCF announced this morning that it has been unable to complete a recapitalisation and restructure.
As a result, the Company would have been unable to certify to its trustee, Trustees Executors, in accordance with the terms of its debenture trust deed that it was compliant with various financial covenants under the debenture trust deed for the financial year ended 30 June 2010.
The trustee acts on behalf of more than 35,000 debenture holders with $1.2 billion of debentures invested in the big lender.
Accordingly, South Canterbury Finance Limited has requested Trustees Executors to appoint a
receiver in respect of the whole of its undertaking and assets, and Trustees Executors Limited has done
This is a sad end for what has been a flagship company which has been a sizeable lender in South Canterbury and beyond.
But there is no need to panic. Investors’ money is covered by the deposit guarantee scheme and the receivers will undertake an orderly sale of assets.
Much of the company’s money is tied up in mortgages on farmland. Forced sales of these would not only put SCF’s equity at risk it would have a very negative impact on farm values.
Finance English Bill English said the government moved swiftly to repay investors, reduce the cost to taxpayers and ensure minimal disruption to the wider economy:
“Ensuring all depositors in South Canterbury Finance get their deposits back as quickly as possible will ensure a minimum of disruption to the economy.
“While this will incur an upfront cost, it will ultimately reduce the cost to taxpayers by about $100 million by ensuring the Crown is not liable for interest payments after the date of settlement.
“Furthermore, being in control of the receivership process takes the pressure off the receiver to quickly sell any assets.
“This ensures the Crown can get the best deal for taxpayers. Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy.
“The up front cost to the Crown of repaying South Canterbury’s depositors is about $1.6 billion, but we would expect to recover the bulk of that as the receiver sells the assets over time.
“The final expected net cost to the Crown is already provided for in the Crown Accounts within the overall provision of about $900 million for all companies covered by the scheme,” Mr English says.
The $1.6 billion upfront is a huge amount but the ultimate cost to taxpayers will be considerably less than this.
Paying out now allows the repayment of deposits to be mdae quickly, minimises disruption to the wider economy and gives government control of the receivership process. The taxpayer should recoup most of the money after an orderly sale of assets.