Commerce Minister Simon Power's decision to put Allan Hubbard in a commercial straitjacket leaves the Government "tailend Charlie" for the $2 million plus the Timaru financier's legal boys have chalked up on his behalf.
It is quite extraordinary that statutory managers Grant Thornton - who have control of all Hubbard's financial entities - now have to go to the High Court at Wellington next Tuesday to seek directions on whether (and from where) they can pay Russell McVeagh's legal fees.
The case promises to be a cause celebre. Not because it will inevitably result in Hubbard's supporters racheting up his Timaru support base into new feats of rhetorical overdrive. (They have afterall already posted comments on Facebook and elsewhere claiming the legal bill is $2.5 million and if it's not paid Russell McVeagh will walk away from Hubbard.)
The reason why the case should be a cause celebre is because the use of the Government's coercive powers (pun intended) must be challenged.
The court action is subject to strict confidentiality orders.
Neither Grant Thornton nor Russell McVeagh have put out anything in public other than the most anodyne statements.
Grant Thornton's spokesman says the hearing would clarify who would cover the legal costs. "We've asked the court to decide how Mr Hubbard's legal fees are to be paid, especially his ongoing SFO-related costs."
Grant Thornton also said it had no further comment to make other than its December 10, 2010 statement which I have reprised below: "We have been liaising, and continue to liaise, with Mr Hubbard's personal legal advisers. The statutory managers put a proposal for immediate legal support to Russell McVeagh during November 2010.
"The statutory managers are confident that appropriate arrangements would be made for Mr Hubbard's personal legal representation should he face charges from the Serious Fraud Office.
"To make further comment at this time would not be appropriate as processes are being developed to handle the situation. You can, however, be assured that the statutory managers are working in the best interests of Mr Hubbard in this matter."
It is obvious that Grant Thornton's November proposal did not involve paying Russell McVeagh's invoice in full.
But the real nub of the case must surely be whether it is "fair and just" for the state - via its Government-appointed statutory manager - to deprive one of its citizens of access to sufficient of his financial assets so he can pay his lawyers' fees for the work they have done to challenge the various courses of action that the Serious Fraud Office indicated could be brought against him.
It's nearly nine months since Power acted on a Securities Commission recommendation and placed the 82-year-old and his wife Jean into statutory management, along with Hubbard's Aorangi Securities and seven charitable trusts. He also announced Hubbard would be the subject of an SFO probe.
In the circumstances it was hardly surprising that Hubbard sought help from a law firm that has won its credentials representing "the big end of town".
Russell McVeagh submitted its first bill last July. Grant Thornton refused to pay it.
Grant Thornton's own fees and costs have priority over the investors in Hubbard Funds Management and Aorangi Securities. Under previous statutory managements the Government of the day made advances to the various statutory managers who were running out companies such as DFC New Zealand or Chase Corporation. The Government ultimately is repaid out of the assets of the corporation.
But given that the statutory manager is still turning to the Government to pay its own bills, it is pretty obvious there was only one place Grant Thornton could have approached to discharge its own responsibility to Hubbard to fund his legal bills.
It would be fatuous indeed to believe the statutory manager did not refer the law firm's request to the Ministry of Economic Development. MED was after all where Grant Thornton went to get its own costs covered. But hardball has prevailed. When Power slapped Hubbard into statutory management he justified the draconian move as necessary "to prevent fraud and reckless company management, to protect investors and to enable the orderly administration of a company's affairs".
"Given the circumstances of this case, that Mr and Mrs Hubbard are involved in the affairs of the entities as depositors, managers, and borrowers, and that loans to related parties have not been properly secured and documented, it was felt statutory management was the only option," Power said.
Judging by the content of the six subsequent Grant Thornton reports it appears obvious that officials wanted to prevent Hubbard from shuffling assets about his financial empire when some entities faced solvency issues.
But the SFO investigation has meandered on interminably. So, it's hardly surprising that Russell McVeagh's bills have mounted up.
Power and his officials should have seen this one coming.
This case should never have gone to court. If the Government had any sense it would swallow its pride and make an allocation so that the statutory manager could pay Russell McVeagh's bills to date.
Power, who resigns from Parliament at the election, refuses to comment on Hubbard.By Fran O'Sullivan Email Fran