Serious Fraud Office probes failed finance company

Capital+Merchant had a high profile before entering receivership. Photo / Jason Dorday

The Serious Fraud Office says it has started an investigation into failed finance company Capital+Merchant Finance, after a referral from its receiver Grant Thornton.

SFO chief executive Adam Feeley said the investigation was focused on specific transactions which, on current information, "appeared to have benefited certain related parties through the use of Capital+Merchant funds in contrived structures and with questionable supporting documentation".

Feeley said the investigation was in its early stages.

"The immediate focus of our work is to gather, analyse and evaluate all the relevant documentation around these transactions, and form a view as quickly as reasonably possible as to the merits of these matters.

"We have received excellent co-operation from Grant Thornton, and from other parties including the second receivers Korda Mentha. We will liaise further with them, and continue to collaborate with other regulatory agencies as appropriate."

Capital+Merchant Finance was placed into receivership in November 2007, owing $190 million to 7000 investors.

The finance company, once described by the Companies Office as the worst it had ever seen, maintained a high profile through its sponsorship of TVNZ's prime time news and weather broadcasts.

It became the 12th finance company to go into receivership in 2007 - two years after managing director Owen Tallentire told the Business Herald: "I don't think there will be a crunch, and if there is, I think we'll find the finance companies can handle it very well."

What the company did not disclose, however, was the high level of related party lending it was undertaking.

Receiver Tim Downes of Grant Thornton said last December that the shortfall of recoveries on previously undisclosed related party loans was a reason why the company's 7000 investors would receive none of their money back in the receivership.

"When you've got stuff when the money's just vaporised you don't get anything back and that's been the tragedy for the retail investors," he said.

In their first report on the company's state of affairs, in 2007, the Grant Thornton receivers said the main assets were loans and advances totalling $182.6 million.

After Grant Thornton's appointment, the receivers had been refused entry to the premises and Capital+Merchant Finance directors sought an injunction to restrain the receivers from taking further steps until a court order was obtained.

That happened on November 29, 2007.

In his judgment, Justice Harrison had commented that on a realistic assessment of its financial position, Capital+Merchant Finance should not have been receiving any public money in recent months, the receivers' report said.

At the end of January new SFO chief executive Feeley had set his sights on meeting a March 31 deadline for decisions on all its finance company investigations, and said headway had already been made in some cases.

In January the SFO was investigating finance firms including Bridgecorp, National Finance and Western Bay Finance.

Feeley also confirmed an SFO investigation into car finance company Club Finance.

CAPITAL+MERCHANT

* Went into receivership in November 2007.
* Owes $190 million to 7000 investors.
* $61 million has been recovered by receivers and paid to US financing company Fortress, and another $26 million to other prior charge holders.