KEY POINTS:
Receiver Korda Mentha says it has uncovered 'alarmingly' poor lending standards and book-keeping in Belgrave Finance's loan book and has referred matters around related party lending to authorities for further investigation.
Korda Mentha said 79 per cent of Belgrave's NZ$30.8 million in property and business loans was irrecoverable
or unlikely to be recovered, with 34 of 43 loans likely to be partially or totally written off.
When it was put into receivership in May 2008, Belgrave's loan book consisted of 43 loans with a total value of NZ$30.8 million. Of the loans, 38 were property related, with the remaining five lent to various business ventures.
It was the 20th of 24 finance companies to fail in quick succession between 2006 and 2008.
The latest receivers report for the failed finance company said there was little evidence of substantive due diligence before loans were made. The report outlined over half of Belgrave investors' NZ$20.5 million in debenture stock was lent in eight loans totaling NZ$10.55 million, all with security and documentation deficiencies, that appeared to be connected to one unidentified counter-party.
Receivers Grant Graham and Brendon Gibson of KordaMentha also noted that three other loans, worth a combined NZ$3.9 million may not be to bona fide third party borrowers. The receivers said certain matters regarding the questionable loans had been referred to the relevant authorities after they questioned various parties, including the company's directors, regarding the loans.
"Our analysis indicates the loan book is significantly more distressed than had first been evident from the director's pre-receivership advice," the receivers said.
"In general we are alarmed at the poor standards of both lending decisions and post drawdown loan management demonstrated in many loans. There is little evidence of substantive lending due diligence having occurred in respect of much of the loan book," they said.
"The general standard of lending file maintenance and updating of loan information is poor. In many cases loans have been subject to multiple extensions of term with no evidence of relevant lending information having been updated."
"At date of receivership 19 of Belgrave's loans had matured and were overdue. A further 16 loans had matured by 31 July 2008 with the balance of the loans having maturities out to 2012. Many loans have been subject to repeated short term extension over the previous 6 to 12 months," the receivers said.
The report said 79 per cent of Belgrave's loan book, by value, was assessed as being unrecoverable or subject to significant uncertainty, making recovery unlikely. The expected recovery range for Belgrave investors is between 24 per cent and 36 per cent. In the period to the end of November, the receivers said they had recovered NZ$1.29 million in loan repayments.
The previous estimate for recovery was for a 19-36 per cent recovery rate.
Belgrave's owners and directors are Shane Buckley and Stephen Smith.
- INTEREST.CO.NZ
