The proposed Allied Farmers/Hanover Finance deal would be one of New Zealand's biggest, most innovative and high-risk commercial transactions.

It is even bolder than the deals investors are anticipating from George Kerr and the revamped Pyne Gould Corporation.

This week's proposal is an attempt by a low-profile Taranaki company to take control of Hanover Finance's assets from the high-profile and publicly vilified Mark Hotchin and Eric Watson.

The important issues are whether the proposed deal is the best option for Allied Farmers' shareholders and Hanover Finance's investors.

A secondary consideration is that Hotchin and Watson are not let off the hook for their deplorable governance of Hanover Finance.

Hanover Finance is one of the worst examples of poor corporate governance and the country's inadequate securities markets' regulatory regime.

The company's last full prospectus, which was issued in December and signed by directors Greg Muir, Sir Tipene O'Regan, Bruce Gordon and Hotchin, said that it strived to have the best corporate governance, disclosure and credit lending policies.

Nothing could be further from the truth. The independent directors were asleep at the wheel, directors' fees haven't been disclosed and its lending policies were extremely loose.

For example, last year's PricewaterhouseCoopers independent report revealed that Hanover Finance had lent $58,851,000 to five property companies owned by Hotchin and Watson yet the total capital of these companies was just $501 according to Companies Office records.

There may have been more undisclosed equity in these companies but the loans, which were in addition to other related party loans, indicated that Hotchin and Watson were able to highly leverage their property activities through Hanover Finance and make financial killings if these ventures were successful. Hanover Finance investors bore most of the losses if these ventures failed.

Hanover Finance, which was partly a private bank for Hotchin and Watson, said on July 23, 2008 that it was ceasing to accept new investments and was suspending all repayments of principal and interest to investors.

On December 9, 2008 Hanover investors were asked to approve a moratorium, which was endorsed by chairman Greg Muir and PricewaterhouseCoopers (PWC).

Under the proposed moratorium Hanover investors were to receive 8 per cent of their money back in 2009, 10 per cent in 2010, 12 per cent in 2011 and 35 per cent in each of 2012 and 2013.