Allied baulks at $5m payment

Allied Farmers' managing director Rob Alloway. Photo / Dean Purcell

Allied Farmers, the company that bought the loan book from Mark Hotchin and Eric Watson's failed Hanover Finance, looks set to take legal action over the deal and says it won't pay the $5 million final settlement because its claims will be for a greater sum.

It is also likely to face legal action by Hanover Group over failure to make the payment.

Hanover Group was making no comment yesterday on its next legal move but has previously said the failure to make payment would be a breach of contract.

Listed company Allied issued a statement to the NZX yesterday, saying it would not pay because it had substantial claims against the Hanover businesses resulting from alleged breaches of the agreement.

Allied has cancelled the agreement under the Contractual Remedies Act and said that ends any future obligations.

Allied managing director Rob Alloway said the claims were for deals where his company could not find "any sufficient commercial rationale or benefit to Hanover, including the release of personal guarantees and the sale of assets at what Allied considers to be less than market value".

"In some instances, it appears to Allied Farmers that the overriding reason that Hanover entered into such transactions was in order to generate the cash funds required to meet its repayment obligations to investors under the moratorium agreement," Alloway said.

In addition, Allied Farmers has informed Hanover that it believes it has further substantial claims against persons who were directors and/or officers of Hanover, the Allied statement said.

"We have considered all these matters very carefully. As the matters are likely to be part of legal proceeding and they involve third parties, Allied will not be making any further comment about the details of transactions that form the claims."

Klaus Sorensen, spokesman for Mark Hotchin and Eric Watson's Hanover, said Allied was contractually bound to pay the $5 million.

"The amount was from the outset earmarked to deal with the residual and contingent obligations of Hanover Finance, United Finance and Hanover Capital."

The $5 million was not a sweetener but part of a legal agreement entered into by Allied when it bought Hanover's loan book, Hanover said in response to earlier media suggestions that the payment should not be made.

Hanover said the original agreement called for $10 million to be paid by Allied as a contribution toward the costs associated with this transaction - such as the costs of closure of Hanover Finance, United Finance and Hanover Capital, including broker commissions, trustee fees, appraisal reports, legal fees as well as providing money to deal with any residual obligations, such as redundancy costs, close-down costs, contingent liabilities.

"It is usual in a transaction such as this that the purchaser would assume all these liabilities."

However Allied did not want to take on the risk of these costs being greater than $10 million and negotiated a figure which was capped at this amount, and required this to be paid in two instalments, Sorensen said.

"In fact, costs have exceeded that amount therefore none of this money will result in a financial benefit to the shareholders of Hanover," he said.

Allied is due to renew its banking facilities by end of today, seeking access to just over $16 million.

Allied chairman John Loughlin said last week the business was still negotiating for funds, which it needed to renew debt facilities for the new financial year starting on July 1. Westpac is its principal bank and has loaned the company $16.5 million with a $2.5 million overdraft.

Alloway said yesterday he was confident an announcement would be made soon on the banking deal. He strongly disagreed with suggestions that Allied was reneging on the $5 million payment because it did not have the money.

VALUE SLUMPS

An investor owed $100,000 by Hanover prior to the deal has seen that investment dwindle to just $13,900, based on yesterday's Allied Farmers share price.

* When Allied bought the Hanover loan book last December investors were offered Allied shares at 20.7c

* They were told that put a value of 72c in the dollar on their Hanover investment

* But Allied shares have fallen more than 80 per cent since the deal was done.

* They closed at 4c yesterday.