Bridgecorp loans under the spotlight
WILLIAM MACE
PricewaterhouseCoopers receiver Colin McCloy has given evidence in the trial of three Bridgecorp directors in the High Court at Auckland this afternoon.
The former finance company directors, Rod Petricevic, Rob Roest and Peter Steigrad, are facing 10 charges relating to allegedly making untrue statements in prospectus documents when raising money from the public.
McCloy was appointed receiver and liquidator of several Bridgecorp companies from its collapse in mid-2007.
He confirmed that Bridgecorp Limited had $459m worth of secured debenture stock, or investors’ money, outstanding.
McCloy said those 14,500 investors could now expect less than 10 cents in the dollar back on their investment, although only 3.5 cents in the dollar had so far been collected.
McCloy said the $76.7m of loans made by Bridgecorp to Barcroft Holdings, which the Crown contends were related party loans that were not disclosed properly in Bridgecorp’s investment prospectus, had not been subject to normal commercial practice.
McCloy said the Barcroft loans had insufficient documentation and security associated with them, they had not been approved by Bridgecorp’s credit committee, and there was a lack of proper monitoring of the loans among other problems.
He said Barcroft appeared to be ”nothing more than a conduit” through which more loans could be advanced by Bridgecorp.
Earlier, expert witness Grant Graham, a chartered accountant from KordaMentha, also threw doubt on the nature of the Barcroft loans.
But Steigrad’s lawyer, Brian Keene QC, challenged Graham’s evidence that Bridgecorp had classified the sale of $76.7m in loans to Barcroft Holdings as to an ”unrelated company” to avoid breaching its trust deed.
Graham believed Barcroft was ”related” and had it been classified as such in Bridgecorp’s prospectus, a clause stating that the aggregate value of scured external loans shall ”not exceed an amount equal to 22.5 per cent of the total tangible assets of the charging group” would have been breached.
However, Keene forced Graham to admit that he had confused the more general definition of ”related party” with the specific trust deed terminology of ”non charging related company” to which any breach related.
”So it didn’t matter whether you put the underlying loans or Barcroft loans in [as to a related party], or the amount of money, because it is not a loan that qualifies, it cannot be a breach of the trust deed?” asked Keene.
”I accept that contention on that reading it is hard to see that it qualifies [as a related party loan],” replied Graham.
However, Graham said he still believed Barcroft was ”related”.
The prospectus had listed it expressly as an ”unrelated company”, but 99 per cent of people who read the prospectus would not have understood the nuances around how an ”unrelated party” was different to an ”unrelated company”.
”So the reviewer of the accounts has dropped the ball by allowing those words to be in there?” asked Keene.
”It’s worse than that I think that it’s misleading,” Graham said.
He said the lack of disclosure had significantly reduced the reported level of related lending, which had been a ”flag” for investors as to the health of finance companies.
McCloy is continuing his evidence. Petricevic and his fellow directors are expected to give evidence later this week and into next.
– © Fairfax NZ News
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Article source: http://www.stuff.co.nz/timaru-herald/business/6415814/Bridgecorp-loans-under-the-spotlight
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