Capital + Merchant Finance Limited (In Receivership)
Update 31 July 2009
Following our last update in January this year, we have now completed realisations on all but one of the loans existing at the date of receivership. To date we have realised $93.7million from the companies’ assets and made payments of $87million to prior chargeholders, which is made up as follows:
|
M$ |
| Fortress | 61 |
| Other prior Chargeholders | 26 |
| Total | $8 |
Following this, if Fortress was on the same priority ranking as the public debenture holders, the recoveries paid to investors in Capital + Merchant as a percentage of total debt is 25 cents in the dollar.
Previously we indicated the intention of handing over the files to the second receivers, who would be seeking recoveries under the Lloyds insurance policy, as well as following up possible claims against directors, borrowers and other parties. However, following discussions between ourselves, the second Receivers and Fortress, the files will remain with Grant Thornton and we will be following up on all of these matters until such time as Fortress is fully repaid. Fortress is currently owed $2.5 million by Capital + Merchant Finance and we are hopeful that these monies will be repaid from the proceeds of insurance claims by the end of 2009.
We are continuing to pursue recoveries under the Lloyds insurance policy and are experiencing difficulty with a number of loans where technical policy requirements were not adhered to prior to the date of receivership. We are continuing our efforts to make recoveries and cannot reliably estimate expected recoveries (if any) at this time. We have requested a refund from the brokers of the premiums paid in relation to the loans included with CMI. We are hopeful that there may be insurance recoveries in relation to the 15 loans included with DMT.
Also, as noted previously, we have continued to work with government regulatory authorities including the Securities Commission and Companies Office in relation to various actions by the company and its directors. While both organisations have confirmed that the matters brought to their attention are serious and warrant further investigation and potentially prosecution action, we have had no indication as to the timing or extent of this action.
As the recoveries of the loans are now virtually complete, the only additional recoveries expected (if any) are those under the insurance policy and possible actions against third parties. Due to the weaker economic climate and poor quality of the loans, realisations from the loans were much lower than initially expected. As a result, we expect recoveries to debenture holders to be $nil.
Contact: Tim Downes, Joint Receiver, Grant Thornton, (09) 308 2989
Update 30 January 2009
Further to our previous updates, we are continuing with our realisation strategies in respect of the remaining loans. To date we have realised $91 million from the companies’ assets. To date we have paid prior chargeholders $83 million. Made up of:
|
M$ |
| Fortress | 57 |
| Other prior Chargeholders | 26 |
| Total | $83 |
If Fortress was included as a public investor the actual recoveries paid to investors in Capital + Merchant (CMI & CMF) as a percentage of total debt is 24% in the dollar.
We are currently in the process of closing off our files with a view to handing over receivership responsibilities to the second receivers in the near future.
Due to the poor quality of loans, and the deteriorating market conditions, realisations from loans are much lower than initially expected.
We have identified a number of issues and actions available for the second receivers to pursue which could lead to further recoveries for debenture holders. These include insurance claims, possible claims against directors, borrowers and other parties. We will be liaising with the second receivers in relation to these matters.
We have also been working closely with government regulatory authorities including the Securities Commission and Companies Office in relation to various actions by the company and its directors. Both of these organisations have confirmed that the matters brought to their attention by us warrant further investigation and potentially prosecution action and they are continuing their initiatives in this respect.
Contact: Tim Downes, Joint Receiver, Grant Thornton, (09) 308 2989
C + M finance recovery likely to be low – concern about some transactions not being appropriate
17 July 2008
Tim Downes and Richard Simpson of accounting and business advisory firm Grant Thornton, acting as first receivers for Capital + Merchant Finance, say that the finance company’s debenture holders are now likely to receive a recovery of only 8% at best of their investment, compared with an original estimate of 14% to 59% long term. When combined with the expected full recovery for Fortress, who appointed the receivers under their priority charge, the overall forecast recovery comes out at 18%.
In their six-monthly report on the state of affairs of the failed finance company, the receivers also say they are concerned about the appropriateness of a number of transactions “and we continue to investigate these along with agencies such as the Securities Commission.”
Recovery Issues
The receivers note that the preliminary estimated range of recovery reflected considerable risks and uncertainties relating to the recoverability of certain loans.
“Unfortunately, the poor quality lending, the deteriorating property market and lack of alternative credit to facilitate refinancing options have had an adverse effect on our ability to recover outstanding loans and assets,” they report. “As a consequence, we now revise our estimate of recoveries to debenture holders to a recovery of up to 8% of their investment.”
Gross recoveries of $42.8 million have so far been realised from 55 loans with a total book value of $182.6 million. Of this amount, $13.4 million has been repaid to Fortress, the balance having been paid to prior ranking security holders or applied to the costs of running the receivership.
The receivers say further sales and settlements are pending, but realisation of the loan portfolio will be a complex and time-consuming process.
Investigations
Dealing with their investigations along with the Securities Commission, the receivers add:
“We are also aware of concerns raised by investors and other parties in respect of certain activities of the company and certain parties, prior to receivership. As a result, thorough investigations are taking place in respect of:
- Specific transactions entered into by the company prior to our appointment
- The activities and conduct of the company, the officers of the company and third parties leading up to the appointment of receivers
- Any other matters that come to our attention.
“Due to the legal consequences and the nature of these investigations, we are unable to provide details regarding these issues or our findings to date.”
Contact: Tim Downes, Grant Thornton, (09) 308 2989
Salvage bid cuts investors' returns
News release 18 May 2008
The receivers of failed finance company Capital + Merchant are set to tell its debenture investors they will get less money back than previously reported.
The firm went bust in November last year owing $167 million to mum and dad investors - many guided by financial planning firm Vestar - but receiver Tim Downes of Grant Thornton told the Sunday Star- Times that the position was "a lot worse" than first thought.
Initial predictions were for a return of 19-59 cents in the dollar.
Since then, investigations had shown the desperate attempts of Capital + Merchant management to save the firm from receivership had invalidated Lloyds of London insurance contracts which it used to promote itself as a low-risk investment. The insurance policies were supposed to protect Capital + Merchant against losses incurred on loans, but the actions of management in selling off all, or parts of loans, to raise money to pay interest to debenture holders and keep the firm afloat, had invalidated them.
The process, called securitisation, involved selling parts of loans to parties like Diversified Mortgage Trust No 1 Limited, and Fortress Credit Corporation, and giving those groups prior ranking security.
"The insurance policies are seriously compromised for a large number of the loans," Downes said.
"The securitisation that has been done has breached the requirements of the insurers. Only one party could be insured. The securitisation with DMT and Fortress with respect to particular loans has breached the key requirements of the cover.
"That has a serious impact on the returns we expected to get from the receivership.
"We have given it a thorough examination and had legal advice, as have [insolvency experts] KordaMentha, and their legal advice confirms ours." The policies supposedly covered 42 of Capital + Merchant's 55 loans, which were described by the High Court judge that put the firm into receivership as a "traumatised loan portfolio characterised by security over large amounts of bare land or uncompleted developments".
Downes would not say how much worse the losses would be, but they would exceed the losses of $68.47m-$135.27m initially predicted for debenture holders.
None were currently getting interest.
Unsecured creditors could expect to get nothing back.
In the first receivers' report on January 30, Grant Thornton said it would continue to pay the premiums on the insurance policies, but admitted: "We have not yet confirmed whether or not there is effective cover in place." Meanwhile, the man who steered Capital + Merchant into ruin, Owen Tallentire, and several former Capital + Merchant directors have set themselves up in business in Australia with a finance company called Cymbis Australia, which is endeavouring to sell debentures to Australians, with part of its big sell being Lloyds insurance policies. They had also launched a company called Cymbis New Zealand, but that went bust earlier last week, only after the directors had changed its name to Fairview Finance to limit the impact on the Australian business.
The Sunday Star-Times attempted to contact Tallentire on cellphone and at Cymbis Australia but he did not return calls.
On its website, Tallentire is described
as a man who "constantly strives towards best practice and prudent management".
But Downes said the receivers had been having very detailed discussions with regulators. "They are showing a lot of interest in the actions of this company and we are communicating in some detail in respect of that.
"The reaction we are hearing from the Securities Commission is that they are very concerned about the actions of a number of finance companies and they are determined to take follow-up action."
Further details of the measures Capital + Merchant management took are emerging.
In February a tiny finance company was put into receivership. Capital + Merchant Business Investments (CMBI) was a company Capital + Merchant bought it in 2006 from the now notorious property investment group Blue Chip.
It had a mum-and-dad debenture investor base, now owed some $1.8m, and bought loans from a Capital + Merchant business called Capital + Merchant Business Finance (CMBF).
But in an extraordinary revelation in a report from PricewaterhouseCoopers, receivers John Waller and Colin McCloy said that CMBF, when faced with a secured creditor demanding repayment, had sold loans owned by CMBI.
"Approximately $1.1m of loans sold by CMBF were loans owned by CMBI," the receivers said.
They have sought legal advice on the sale, saying: "In the course of the receivership, should it be determined that breaches of legislation have occurred, these breaches will be reported to the relevant government authorities."
Full recovery from Capital and Merchant finance not possible, say receivers
News release 31 January 2008
Receivers Richard Simpson and Tim Downes of Grant Thornton say that their initial estimate of the business of Capital + Merchant Finance Limited is that secured debenture holders may recover up to 59% of their investment over time.
In their first report on the state of affairs of Capital + Merchant Finance, the Receivers comment: “Realisations from the assets depend on certain events occurring. The outcomes from various events could materially affect the amount Capital + Merchant Finance receives."
“It is clear from our work, however, that there will not be a full recovery to secured debenture holders.”
Richard Simpson and Tim Downes were appointed receivers by the first ranking secured creditor, Fortress Credit Corporation (Australia) II Pty Limited. They were also appointed receivers of Capital + Merchant Investments Limited a related party. The report says that they have been mindful of the need to ensure that all their actions during the receivership are in the best interests of all the company’s stakeholders, including the debenture holders.
Backgrounding the receivership, the Grant Thornton report said that due to the failure of various finance companies, new investments and re-investments were adversely impacted, with re-investments falling to 10-20% compared with 50% a year previously. A number of the properties for which Capital + Merchant Finance held securities had been subject to unsuccessful attempts at sale and had diminishing prospects of realisation at the required values on the open market, forcing short to medium term cash problems.
The report notes that following the firm’s appointment, the receivers were refused entry to the premises and Capital + Merchant Finance directors sought an injunction to restrain the receivers from taking further steps until a court order was obtained. This occurred on 29 November 2007.
“In his judgement, the judge (Justice Harrison) commented that on a realistic assessment of its financial position, Capital + Merchant Finance should not have been receiving any public money in recent months,” said the receivers’ report.
The Receivers said the company’s major asset was its loans and advances, totaling $182.597 million.
The majority of loans were for property development projects in various stages of completion. Interest was accruing and capitalising on most of the loan balances.
“The combined Capital + Merchant Finance and Capital + Merchant Investments loan portfolios have a total concentration of 35% ($90 million) relating to interests of two borrowers, being 19% ($48.4 million) for one borrower and 16% ($41.2 million) for the other borrower.”
Grant Thornton’s report said that each loan was being individually analysed to determine the appropriate strategy for maximising realisations. But, due to commercial and confidentiality reasons, the receivers were unable to provide specific details in respect of individual loans.
An Insurance policy was in place for unrecovered principle in the case of 42 of the company’s 55 loans. However, it had not yet been confirmed whether or not there was effective cover in place and specialist advice in this area was being taken.
Contacts:
Tim Downes (09) 308 2989 or Richard Simpson (04) 495 3772, Grant Thornton
Capital + Merchant Finance Limited - Receivers First Report
Update 7 December 2007
Capital + Merchant Finance Limited - Frequently Asked Questions
Update 30 November 2007
The receivers would like to provide an update to anyone who has invested money in Capital + Merchant Finance Limited (In Receivership).
The receivers are currently working to gather as much information as possible and are unsure at this stage as to any outcome for investors. We would like to advise investors that while we may be unable to personally contact them directly due to the large number of enquiries, there will be a letter and report with further information sent to each investor in the post in due course.
This website will be updated with any further details as further information comes to light.
Grant Thornton appointed receivers - 29 November 2007
Tim Downes and Richard Simpson of Grant Thornton, chartered accountants have been appointed as receivers of Capital + Merchant Finance Limited and Capital + Merchant Investments Limited by Fortress Credit Corporation (Australia) 11 Pty Limited (“Fortress”).
The receivers have been appointed due to breaches in respect of General Security Agreements issued by the companies in favour of Fortress, says Grant Thornton.
The Capital + Merchant companies predominantly lend to the property and property development sector.
According to Grant Thornton, the current state of the debenture market has meant that the ability of the Companies to attract new funds and retain existing investments has been significantly constrained, leading to the Companies being placed in receivership.
Due to the volume of enquiries in relation to this Receivership, the Company or Grant Thornton may be unable to respond individually to customers.
For further information contact:
T 09 308 2970
E capitalmerchantfinance@gtak.co.nz
Further information will be added to this page as it becomes available.