Equiticorp - the longest goodbye

Allan Hawkins. Photo / Herald File

In the year 2010, nearly 22 years after one of New Zealand's biggest corporate collapses, it's a little unnerving to call accountant Conway Paton's Auckland office and still get the reply: "Equiticorp".

By now, Equiticorp's 1989 collapse should be just a fading stain on the country's corporate history, but the company's ghost still lives on, as its statutory managers work to realise the last of its assets and drip-feed a little more money to investors.

After more than two decades of dogged legal action in the courts of Malaysia, Singapore and New Zealand, the end drew a little closer last month. The breakthrough came when a Malaysian High Court judge paved the way for the sale of an increasingly valuable piece of commercial land in the central business district of the capital, Kuala Lumpur.

The property, held by interests of bankrupt businessman Cheah Theam Swee and his brother, could fetch upwards of $80 million.

For 5400 long-suffering Equiticorp Holdings debenture-holders, the wait could produce at best a further 1c or 2c in the dollar on their original investment.

The managers are not yet confident enough to peg the amount or timing of any distribution, because when the sale is finally done they are in a queue with other creditors, including a Malaysian bank.

However, it seems there is reasonable chance of a return in the foreseeable future.

For some investors, it will mean all their money back, with interest. In the worst case, at least 70 per cent of original investments are likely to be recovered.

That's for investors who are still alive and contactable. Many were already elderly when the Equiticorp juggernaut hit the wall on January 22, 1989, bringing down 153 companies in its stable.

Paton was the company's accountant, and now works alongside the statutory managers on the day-to-day recovery aspects.

He says that in some cases investments have been split among beneficiaries of estates, increasing the number of debenture-holders. Corporate scavengers have also picked up debentures from investors who were not prepared to see out the statutory management. To add to the complexity, there are 700 investors on the register with no known address.

For Equiticorp's statutory managers Fred Watson, Bruce Stowell, Kerry Stotter and Gerry Rea, resolution of the Cheah property will bring them a giant step closer to the end of a marathon winding up, surpassed in length only by the late Doug Hazard's 25-year receivership of the JBL group of companies between 1972 and 1997.

Cheah Theam Swee was a thorn in the side of Equiticorp management well before the company collapsed.

As former Equiticorp boss Allan Hawkins put it in his book The Hawk, "we got involved with a client who ultimately became our biggest single problem and whose account later required our largest bad debt provision."

Equiticorp's corporate finance arm had sold its listed shell company JEDI Corporation, renamed London Pacific, to a Cheah-led consortium. Cheah also got control of listed companies Clearwood Thoroughbred Stud and Perry Dines.

"Everything went wrong with this business deal to some degree because of internal errors of judgment when our board rules weren't strictly adhered to," Hawkins says in his book.

"Cheah did a runner from New Zealand causing Equiticorp to write off about $100 million."

Some members of the consortium settled with the statutory managers in 1995, reducing the amount claimed from Cheah to S$76 million (at the time, about $74 million) when the statutory managers filed proofs of debt in their - eventually successful - bankruptcy petition against Cheah in the Singapore courts.

Now aged 77, Cheah Theam Swee is a barrister who once invested around the world. He was a Minister in the Malaysian government in the 1960s, and now lives with his son in Singapore.

By all accounts he was regarded as relatively wealthy, says Bruce Stowell, the statutory manager overseeing the court action.

Wealthy enough to be a life member at the fashionable Royal Selangor Golf Club in central Kuala Lumpur; an internet search shows Cheah scored a hole in one there in July 2002.

But when Cheah filed his statement of affairs with the Singapore Official Assignee, the Kuala Lumpur property was the only visible asset.

Because of his bankruptcy, Cheah's brother Dr Cheah Theam Kheng has recently been at the forefront of endless litigation to thwart the apparently inevitable sale of the property. Cheah's brother also has an 18 per cent stake in the company which owns the property.

Stowell makes no bones about the frustrations of dealing with Asian courts which appear to proceed at a slower pace than their New Zealand equivalents. Then there have been the myriad reasons for delays, including the deaths of a judge and lawyer. One court date was changed because a judge went to Pakistan on a pilgrimage. Another left to have a baby and one had a heart attack. Stowell says there has only ever been one full examination of Cheah in the Singapore courts over his bankruptcy.

When Equiticorp collapsed, David Lange's Labour Government used the Corporations (Investigation and Management) Act 1989 to place the group in statutory receivership (since renamed statutory management). At the time, Equiticorp's book value was $1.4 billion and debts were more than $550 million.

The pursuit of Cheah has to a large extent been a sideshow to two main events. The statutory management resulted in one of the country's longest and most complex criminal cases in the High Court at Auckland. For his role, Equiticorp boss Allan Hawkins was jailed in 1993 for fraud for six years (but served only 2).

And the collapse also brought the Labour Government of the day into disrepute over its role in Equiticorp's illegal 1987 purchase of the Crown's 89.9 per cent stake in NZ Steel. In February 1998, after a 198-day trial, the government handed over $267.5 million to the statutory managers in an out-of-court settlement.

Today, Hawkins is back in business and the four statutory managers are still scribbling investor newsletters every six months, detailing every avenue of debt recovery. They're all now in their seventies, but their appointments are personal, so until the book is closed they can't truly retire.