Strategic Finance directors, auditors cut $22m deal

The former directors and auditor of Strategic Finance have cut a $22 million settlement with the failed lender's receivers and the Financial Markets Authority, which will see about 10,000 investors get back 15 cents in the dollar from funds that have been frozen since December 2008.

As part of the settlement, the former directors Kerry Finnigan, Graham Jackson, Marc Lindale, Timothy Rich, Denis Thom and David Wolfenden provided the FMA with an enforceable undertaking they will not act as a director or promoter of a public issuer for five years, or accept an appointment as a chief executive of chief financial officer of a public issuer for three years without the regulator's approval. They don't admit any liability.

"In reaching this settlement we are providing certainty and compensation to investors," FMA director of enforcement and investigations Belinda Moffat said in a statement. "The terms of the settlement deliver a strong deterrence message and include enforceable undertakings from the directors of Strategic not to act as a director of an issuer of securities to the public for five years."

The settlement with the directors and auditor BDO represents 5 cents in,the dollar for secured investors, and settles the civil claims both faced by receivers John Fisk and Colin McCloy of PwC, and the civil claim against the directors filed by the FMA. One condition is yet to be met, and payments are due to be completed by November, with investors likely to be repaid before the end of the year.

"The settlement process was rigorous and complex, but agreement was ultimately able to be reached between all parties," Fisk said in a statement. "In the end, and following consultation with key stakeholders, the decision by us and FMA to agree to the settlement will enable secured investors to have certainty and further funds before the end of the year."

In their May update, the receivers estimated debenture holders would get between 12 percent and 20 percent of their principal back. Strategic investors owed $367.8 million have been repaid 10 cents in the dollar, or $36.8 million so far.

The FMA’s predecessor, the Securities Commission, began investigating Strategic in 2009 when former Act Party MP John Boscawen told Parliament the finance company misrepresented about $68 million worth of debt which it classified as second mortgages when they were effectively a third-ranking security. Former Commerce Minister Simon Power subsequently referred the matter to the regulator.

Strategic was sent to the receivers in March 2010 by trustee Perpetual Trust, ending a moratorium arrangement that had been in place since December 2008.

The finance company missed its milestone repayment in January of that year when it failed to generate enough loan recoveries.

It had tried to get out of trouble in a debt-for-equity swap with South Canterbury Finance that would have given Strategic investors a mix of SCF debentures, shares and preference shares, but Perpetual chose to call in the receivers instead.

The FMA dropped its investigation into former director, the late Jock Hobbs, in mid-2011 as the extent of his illness became apparent.