$6.9m shortfall from Harcourts' Preet businesses: agency and management business debts

Preet Grewal, a director of the Preet Harcourts' businesses.

Creditors of two Preet Harcourts' businesses are expected to be out of pocket by $6.9 million, according to administrators in charge of the real estate companies.

A report from administrators Jeff Meltzer and Michael Lamacraft of Meltzer Mason on the 10-branch Preet & Co Real Estate and Preet & Co Rentals showed the companies' financial positions late last year, based on information from director Preet Grewal.

Secured creditors were initially listed in November as BNZ claiming $10.179m and Harcourts Group wanting $1.2m, the report said. Unsecured creditors are Inland Revenue claiming $2.2m, Preet & Co Real Estate known trade creditors wanting $859,749 and Preet & Co Rentals' known trade creditors wanting $20,817.

That gave a total of $14.5m but administrators have now sold some assets and updated the financial position.

Accounts for Preet & Co Real Estate estimate a $5.2m shortfall, including bank debt of more than $1m and $1.7m owed to Harcourts Group. Accounts for Preet & Co Rentals estimate a $1.6m shortfall partly from $1.2m owed in bank debt and more than $150,000 owed to Harcourts Group.

The Herald reported in January how an investigation into "abnormalities" in the trust account of the 10-branch Auckland Harcourts business had been referred to the Real Estate Agents Disciplinary Tribunal.

The administrators told in their report how they had tried to sell the Preet businesses. An offer from a potential purchaser, at 2.5 times the annual fee income, was received, "but the purchaser was ultimately unable to raise funding".

The administrators said the value of the real estate sales businesses was in the staff: "The main value in the business Preet & Co Real Estate was derived from the number of sales consultants who were retained by the company. The company's income was generated from the sales achieved by the consultants," the report said.

Preet & Co Rentals' value came from property management fees, dependent on property managers being retailed, the administrators said.

But when issues with the business were revealed and reported by the media, staff "jumped ship", the report said. This had "an adverse effect on the interest shown by purchasers/proposed purchasers. Interest effectively evaporated."

The value of the real estate business has been negatively impacted by the loss of agents, the report said.

The administrators sold the assets of Preet's real estate businesses in Howick and Pakuranga and Botany. They were all sold as going concerns and as Harcourts' franchises, the report said. The assets of the Sharkey Street business were also sold.

The administrators have realised assets of $2.59m.

Chris Kennedy, Harcourts chief executive, said in December that Preet Grewal "has voluntarily suspended his licence while the REA looks into possible abnormalities in the trust account for Preet & Co Real Estate. However Harcourts Group Ltd has ensured no member of the public with monies in the trust account has been affected. Preet Grewal is a shareholder in Preet & Co Real Estate Ltd and Preet & Co Rentals Ltd with 10 offices and he is still on the company's web site."

Grewal told the administrators he had hoped all creditors would be repaid.

"Immediately following their appointment, the administrators received indications from the director/shareholder Mr Grewal that he might be able to achieve an outcome that would result in payment in full to all creditors," the report said.

"Mr Grewal assured the administrators that he was fully committed to paying all creditors. However his view was that the nature of the business was such that sales consultants, vendors and rental client landlords would desert the companies once the appointments became public, rendering the business valueless."