Published 5 September 2007Nelson financier LDC Finance Ltd called in receivers yesterday – forced by redemptions. Its trustee, Perpetual Trust, said an unprecedented number of investors had demanded their money back over the past 2 days.
The company appointed John Fisk & Malcolm Hollis (PricewaterhouseCoopers Wellington) as receivers.
The Securities Commission said LDC, along with all other finance companies, had told the commission last week that its prospectus was up to date and not false or misleading. However, Perpetual Trust then mentioned the run on funds at the end of the week – a run which, judging from an alert from directors in January, and the company’s 27 April prospectus, could have been justified at any time this year.
The receivers said LDC had total financial assets of $23.8 million – well down on the $29.3 million 6 months ago, when 2 Nelson investors injected $4 million to keep the company afloat.
LDC had 408 investors in $11.1 million of secured debentures, 576 investors with $7.9 million in call deposits, another 11 investors with term deposits, total investors 995, total investment $19.3 million.
The receivers said they would explore all options for the company, “including seeking expressions of interest from other parties. However, in the event that a sale of the business is not achieved, it is the receivers’ intention to make quarterly distributions to the secured debenture stockholders. The unsecured depositors & unsecured creditors will only receive payments once the secured depositors have been paid their principal & interest in full.”
When that might be, they didn’t know. However, the directors said they expected every secured debentureholder & depositor would be repaid in full.
That statement raises a questionmark over the propriety of LDC’s 27 April prospectus, in which the company chased unsecured depositors as well as secured investors.
LDC acted as a wholesaler to smaller retail finance companies in Nelson, Marlborough & Canterbury. They, in turn, lent on a range of assets – boats, vehicles, plant & machinery, residential & commercial property.
LDC said in that 27 April prospectus that, at the March 2007 balance date, 77% of its money was lent to the public, 23% to 4 retail finance companies. Directors became concerned in January about the recoverability of financing facilities to retail finance companies and made a $5.2 million provision for a worst-case scenario.
That provision meant the company would be in breach of its trust deed by having total liabilities exceeding 90% of total tangible assets. After a $1.5 million increase in capital, the excess would be $1.15 million.
Directors said then that, of the outstanding balance of $13.5 million of loans, only $9.5 million was likely to be recovered. They said LDC was also possibly in breach for its lending to Halifax Finance Ltd (a liability assumed by SC Management Ltd in December 2006).
The directors’ response was to issue a new prospectus containing updated financial details, and to raise the company’s equity, which LDC did through a $4 million injection from a local finance partnership (the Murray Scholfield & Andrew Harding Partnership). The new investors took an assignment of 4 specified loans as security, got priority for their shares ahead of the existing shareholders and were granted a priority dividend, initially 15.3%/year.
Before the new prospectus went out, LDC had $13.17 million of secured debenture stock (secured, but according to the prospectus nobody was guaranteeing it) ranking ahead of $12.5 million of unsecured deposits.
The prospectus showed LDC made a $4.85 million loss in the March 2007 year, after $4.1 million of operating revenue was outweighed by $8.94 million of expenses. It had total assets of $31 million (all but $300,000 of that tangible), total liabilities of $26.3 million, leaving total equity of $4.66 million.
Both assets & liabilities fell by about $6 million from the previous year – assets from $36.9 million, liabilities from $32.9 million.
The accounts show LDC wrote off $804,000 in the March 2007 year (nothing the previous year), increased its general provision for doubtful debts from $100,000 to $400,000 and made specific provision of $4.5 million (also nothing the previous year). The specific provision related to lending to retail finance companies, which the company stopped after the early-2007 review.
Of the 237 advances at 31 March, the 6 largest borrowers owed 45% $20.3 million of the $29.3 million outstanding credit was owed locally.
LDC’s directors are Kevin Elliott, Chris Hardiman, David Miller & managing director John Jannetto, all of Nelson. Mr Hardiman is a director of accountancy firm Carran Miller Ltd & Carran Miller Financial Services Ltd, LDC shareholder Ross Stevenson is also a Carran Miller director and Mr Elliott is a former director.
Attribution: Securities Commission release, company documents, PWC release, story written by Bob Dey for this website.