Related party loan scandal – end of the road for Kerr?

Is it the end of the road for Pyne Gould Corporation chairman George Kerr?

As the court slammed PGC’s wealth management unit Perpetual Trust over related party lending – requested by Mr Kerr – yesterday, NBR ONLINE readers were asking just how low the South Island businessman and his fellow directors can take the once esteemed, trusted and iconic company Pyne Gould Corporation.

Confidentiality orders concealing a Financial Markets Authority’s investigation into PGC were discharged at midday yesterday, revealing the authority is working to recover $28 million lent from the cash fund of Perpetual Trust to the Kerr-controlled Torchlight fund.

The millions were advanced on a security value of $21.6 million and against the trustee’s established lending criteria, prospectus statement guidelines and the concern of a member of Perpetual’s corporate trust board.

With $13 million outstanding on the loan, the FMA said Perpetual has had ample time to repay the loans and investors now need to know about behaviour of directors.

Justice Paul Heath was scathing of the trust when he discharged the confidentiality order under urgency at Auckland High Court last week.

He referred to an email from Mr Kerr (as chairman of Torchlight) dated February 19 requesting a financial facility from Perpetual’s Cash Fund to be made the next day.

“No formal application for finance was made,” Justice Heath said.

“Nor was any information provided about Torchlight’s creditworthiness or financial position.

“The lack of judgment and understanding of the role of a trustee of funds of this nature, evidenced by the circumstances in which the loans came to be made, is striking,” said Justice Heath.

His concern was exacerbated further by the realisation that the securities on which the loans are made may not be as robust as Perpetual suggested, the judge said.

“If they were, it is likely that Torchlight could have refinanced to pay back the Perpetual loans.”

Perpetual Trust fought hard to keep details of the loans suppressed, arguing disclosure should not be made until the loans had been repaid, or earlier, as Perpetual might choose.

But the Court of Appeal threw out the trust’s desparate appeal of Justice Heath’s decision on Wednesday.

PGC yesterday made a statement to the NZX, on Perpetual Trust’s behalf, saying it did not accept the FMA’s interpretation of a $28 million interfund facility between the Perpetual Cash Management Fund (CMF) and Torchlight Fund No 1.

“Perpetual considers that the interfund facility provides superior first-ranking security and provides a good return,” the statement says.

Torchlight had agreed to “prepay” the interfund facility in advance of the scheduled February 2013 date.

“To date, Torchlight has prepaid $15 million in cash leaving a balance of approximately $13 million outstanding. Full prepayment is expected this month,”
 Perpetual’s statement said.

PGC shares were placed in a trading halt late yesterday, pending an announcement after a media report it will relocate to the ASX and divest its Perpetual Trust unit.

Pyne Gould’s shares last traded at 29 cents yesterday, valuing the company at about $60.7 million.

By the end of the day, the Serious Fraud Office confirmed it had also received information about the loans.