Bridgecorp used 'conduit' to shift money

Rod Petricevic (left) and Robert Roest face a number of criminal charges. Photo / Richard Robinson

Bridgecorp sold $76 million of debt to a "conduit" company, then loaned the same amount, in a related party transaction that benefited a Bridgecorp director, says a Companies Office banning report.

The Companies Office has banned Rod Petricevic and Rob Roest from running any company in New Zealand for five years. The two men are facing criminal charges in connection with the collapse of the $460 million Bridgecorp company group.

A report from the national enforcement unit of the Ministry of Economic Development (MED), released to the Herald under the Official Information Act, reveals the details of the "Barcroft transaction".

On June 30, 2006, Bridgecorp sold seven loans - owed by companies that Bridgecorp director Gary Urwin was the director of - worth $76 million to Barcroft Holdings Ltd.

Incorporated that day, Barcroft's sole director Anthony McCullagh was a chartered accountant who had previously advised Bridgecorp.

Barcroft issued promissory notes to pay the loan but paid no actual money. Just a few hours later, Bridgecorp loaned Barcroft $76 million.

The $76 million sale to Barcroft was not approved by the Bridgecorp board, nor did the $76 million loan to Barcroft meet normal lending criteria. According to the MED report, Barcroft was used as a "conduit" to finance the seven entities that Gary Urwin - a Bridgecorp director - was the principle director of.

Furthermore, six of the seven companies were subsidiaries of REAL, a company that Urwin, Petricevic and Roest owned shares in.

A May 2007 email from Bridgecorp's internal audit and risk manager challenged Roest about the Barcroft loan, after Roest said there was no conflict of interest with Urwin as it was an unrelated party loan. "The immediate beneficiaries of the Barcroft loans are companies in which Gary Urwin has beneficial interests. He is also the principle person who provides information to Bridgecorp on this loan," the email to Roest says. "Barcroft is merely a conduit on this loan."

The MED report says the Barcroft transaction should have been disclosed as a related party loan in the prospectus to the public - but was not.

"The Barcroft transaction was the single most significant transaction undertaken by Bridgecorp, yet no in-depth consideration was recorded as been undertaken by the board of directors prior to its approval," says the report.

"It was a fundamental duty of care to ensure that its prospectus did not mislead the general public."

The report also says the Barcroft transaction highlights conflicts of interest with the Barcroft loan on the part of Urwin, Petricevic and Roest.

"All three hold small share parcels in, and are directors of REAL, the subsidiaries of which (in at least six out of seven cases) are the ultimate borrowers under the Barcroft loan."

The loan resulted in Bridgecorp having twice as much exposure to the Momi Bay resort development in Fiji as was disclosed in the prospectus.

Bridgecorp collapsed in July 2007 owing about $460 million to 14,500 investors. According to an update from receivers Colin McCloy and Maurice Noone, of PricewaterhouseCoopers, debenture investors are likely to receive less than 10c in the dollar of their investment back.

The Registrar of Companies has brought criminal charges against Petricevic and Roest alleging Bridgecorp staff were told to lie to investors who complained about late interest payments.

The Securities Commission has also begun civil proceedings against the pair and Bridgecorp directors Bruce Davidson, Gary Urwin and Peter Steigrad which may pave the way for investors to take further action.

The Serious Fraud Office is also investigating.