Key Points:

Over the past three decades, Graham Miller has had a ringside seat at some of New Zealand's most colourful financial circuses.

Even before the sharemarket crash destroyed many people's life savings in 1987, he cut his teeth as a young chartered accountant on the mess left behind when the latest, greatest money-making schemes inevitably collapsed. Films, goats, forestry, apples and kiwifruit - he's seen more than a few dreams of riches turn into nightmares. More recently, he helped get the best deal he could for investors hit by the collapse of Western Bay Finance and National Finance.

As a trustee and managing director of Covenant Trustee Company, it is his job to keep a beady eye on the books of businesses keen to cash in on the public's desire to park their nest eggs somewhere other than a bank, and help them through any tricky patches.

"I love helping people solve problems," he enthuses.

However, Miller quickly realised that the problem presented to him on June 27 was far too big for even him to handle.

The phone call came on an otherwise ordinary Wednesday afternoon. It was a broker, disturbed that her client hadn't received a payment due from finance company Bridgecorp.

Miller, a particularly genial fellow, was furious. "Normally, we like to hear it from the company, not from someone else," he frowns. He was even more furious when he later found out that the company had begun defaulting on payments a week earlier.

What followed was a whirlwind of phone calls, meetings, and late nights with accountants, government officials, and directors.

Within a very short time it became apparent that the company wasn't salvageable, he says. When confronted with the facts, the directors raised the white flag. Receivers John Waller and Colin McCloy from PricewaterhouseCoopers moved in almost immediately and promptly made 13 staff redundant.

Waller admits he was gobsmacked when he looked at the company's books. Earlier that month, Bridgecorp had sent an update to its clients and advisers which stated that it had shareholders' funds of $76 million at the end of May. While it admitted that $21 million worth of loans were impaired, and another $97 million were questionable, it noted that this was less than 20 per cent of its total assets of $586 million. In any case, more than 80 per cent of its loans were either first or second-ranking securities, it claimed, and more than half its loans were insured.

What the receivers found just one month later was rather different: at least another $110 million of loans appeared unrecoverable. More than $87 million of inter-group assets were probably write-offs. Nearly $12 million of taxation benefits were questionable. Another $28 million worth of property was extremely doubtful. The amount likely to be recovered from insurance was "not significant". Just 25 of its 69 loans had either first or second mortgages. And there was only $158,000 in the bank.

It got worse still. By the time Waller's staff moved into Bridgecorp's offices at 1 Queen St and downloaded every hard drive they could find, there was just $6000 left in the bank.

Waller is an old hand at this sort of thing, and prides himself on being organised. But even he was surprised at the strength of the public reaction. "The telephones just basically seized because of all the calls coming in."

For now, the receivers' job is to recover as much money as they possibly can. Their immediate priority is to get Bridgecorp's single biggest project - a swanky Fijian resort in which it was both a financier and developer - back on track as soon as possible. But already, a reasonably clear picture is emerging of what appears to have gone wrong, and why.

While some critics have never been enamoured of the company, it was its decision to invest in an ill-fated residential development in Melbourne that put the public spotlight firmly on its finances.

As Bridgecorp insiders tell it, the Australian authorities were embarrassed by the massive collapse of the Westpoint group, which was overseeing the Melbourne project, and were determined to make someone the scapegoat. That someone happened to be Bridgecorp and, after reviewing its finances, the Australian Securities and Investment Commission (ASIC) refused to allow the company to solicit any more money from Australians.

Those familiar with the Australian property scene find that explanation naive to say the least. But, in any case, Bridgecorp's assurances that its problems in Australia would not affect its New Zealand investors proved at best unwise. Public records show a multitude of share transactions between the Australian and New Zealand divisions of the company over the past year, and it has since been revealed that tens of millions of dollars of New Zealand investors' money were transferred across the Tasman to help keep Australian investors happy.

It also appears there might have been other issues in Australia, involving an A$18 million ($20 million) loan to former Australian cricketer Craig McDermott, for a development in Hervey Bay in Queensland.

And it's not as if the New Zealand division didn't have its own problems. Despite Bridgecorp's claims in its prospectus that its debentures were suitable for "conservative" investors, it was in many cases a lender of last resort. While this allowed the company to charge developers extremely high interest rates, it also meant that its chances of collecting its money were poor.

Despite its best efforts to put a positive spin on its problems in Australia, some investors started getting nervous. They got even more nervous when reports began surfacing of problems in Fiji. Interest on many of its loans was not required to be paid until settlement. Soon there wasn't enough cash coming in to cover the money going out. The company sold off its better loans to help pay back investors. But even that wasn't enough.

The receiver of its Australian finance company has revealed that shortly before it collapsed, nearly $4 million was transferred out of Australia to New Zealand. He has referred the matter to ASIC.

Miller insists that what now looks like an increasingly desperate situation was not particularly obvious at the time. In fact, it appeared to him that the directors were dealing with cashflow issues "reasonably and carefully", he says.

However, at the same time the breach occurred, the directors put forward a proposal "which upon analysis smacked of desperation", says Miller.

Company insiders say they understand managing director Rod Petricevic had someone lined up to offer a rescue package, but that the package was unable to be put together in time because Petricevic himself was caught on the hop by how quickly the situation deteriorated.

Following the Westpoint collapse, the company admitted it was under pressure. But the auditors, Australian firm PKF, signed off the accounts. And Bridgecorp made a point of mentioning the uncertainty in Fiji, two weeks after the coup in December.

A further note was added about Fiji in February. The trustee requested a further report, but in May PKF didn't see the need to add anything further, says Miller.

PKF refused to answer queries from The Business. "As you know, as Bridgecorp's auditors the only thing we can do is refer you to the latest auditor's report. We are strictly limited as to what we can say and the level of detail we can provide," the firm said in a statement.

PKF was not the company's original auditor. In January 2003, Grant Thornton decided it was no longer comfortable with the kinds of activities Bridgecorp was involved in, and declined to continue. Two other major accounting firms are believed to have declined the opportunity to tender for the work.

Bridgecorp's trust deed is an older version, which only requires the company to provide three-monthly reports to its trustee. Newer deeds require monthly reporting. But Miller insists he regularly sought further information.

In the case of National Finance, which failed last year, problems were flagged six months before there was any kind of breach. But with Bridgecorp, the auditors indicated everything was manageable, and the breach came as a complete surprise, says Miller.

The company's staff maintain they were also kept in the dark. "I didn't even know we had an investment in Fiji until I read about it in the paper," says one former employee.

Says Waller: 'I think some of the staff were aware it was in difficulty, but I'm not sure they were aware of the extent."

What remains to be seen, of course, is whether the company's board was giving Miller and the auditors a true picture of its financial situation. And more particularly, whether investors and their financial advisers were also misled, given the extent to which assets appear to have been overvalued.

A more detailed report from the receivers is due by September 12. But the initial picture revealed by Waller last week, which estimated debenture holders are likely to recover anywhere between 25 and 74 per cent of their money, came as a shock to many.

In a letter to its clients, financial planning firm Ellerie Cornwall Financial argued Bridgecorp had committed "moral betrayal".

"Rumour aside, we and the wider market have apparently been deceived point blank for some time," it suggested.

If it turns out that there were breaches of the Securities Act, or any other laws, then Bridgecorp's directors could be facing jail terms. The maximum penalty for misleading investors is five years. But if the Serious Fraud Office gets involved, as the grapevine seems to be speculating, it could get worse. There is even talk of pulling out never-before-used sections of the law to enable creditors to get their hands on assets tied up in family trusts.

Not surprisingly, given what's at stake, those most closely associated with the company have gone to ground.

Chairman Bruce Davidson, who Petricevic inherited when he transformed the Toy Warehouse into Bridgecorp in 1993, has watched the company grow from a $2 million pipsqueak to a $600 million giant during his 14-year stewardship. His only public comments have been to muse on the new insolvency laws. He did not return calls, and is reportedly devastated by the collapse.

Rod Petricevic, like other directors, maintains that he has been told by the receivers to keep his mouth shut, and even former staff are keen to distance themselves from the disaster.

Eric O'Sullivan, a former company secretary of Lion Nathan who until the end of last year was Bridgecorp's finance director, is now company secretary and investor relations manager for Tower. Mike Drummond, a former bigwig in the BNZ who was general manager of Bridgecorp's New Zealand operations until early this year, is now general manager at Canterbury Finance. Both declined to comment, preferring to "move on".

However, as is often the way with major disasters, there has been no shortage of people keen to say "I told you so" - in many cases, with some justification.

Kapiti Coast sharebroker Chris Lee has been hailed as a hero by many potential investors for his caustic and consistent criticism of Bridgecorp going back several years.

Lee is a controversial figure in the industry, and his critics are quick to point out that his own record is not unblemished: he might have been right about Bridgecorp (and Western Bay and National Finance), but he was completely wrong about Provincial, they note.

Yet his was hardly a lone voice in the wealth management wilderness. Financial analyst Roger Armstrong has also published at least two highly critical analyses of the company as far back as 2002. And anyone paying attention to the business press, particularly the work of Independent Financial Review journalist Denise McNabb, must also have heard the alarm bells ringing.

One Auckland investor happily admits his newspaper subscription turned out to be his best investment. The man, who would only talk on condition of anonymity, was such a loyal client of Bridgecorp that he recently featured in one of the company's newsletters. But he became nervous about the stories he was reading in the press, and after 12 years of satisfaction, he decided not to renew his investments when they matured. Luckily for him, it was only weeks before it collapsed.

In fact, one theory doing the rounds among advisers is that their eventual reluctance to reinvest in Bridgecorp might have been the last straw for the company, further starving it of much-needed cash.

The company was acutely aware that fear itself was something to fear. So concerned was it that publicity about its problems in Australia and Fiji would lead to investor panic that it threatened legal action against anyone who dared to publicly question it.

Publisher Phil Macalister was astonished to receive a letter from heavyweight law firm Bell Gully after making what he thought were some fairly innocuous comments about the company on his financial website "I can laugh about it now because Bell Gully are probably unsecured creditors," he says.

But for some investors, the quality of advice they got from so-called professionals is no laughing matter.

Around two-thirds of Bridgecorp's funds were channelled through financial advisers, some of whom appear to have been less than forthright with their clients.

There have been claims that some advisers were wooed with inducements, such as the chance to win a trip to the Rugby World Cup, and generous commissions. Some are alleged to have deliberately rolled over their clients' investments at regular intervals, because that way they made more for themselves.

On the other hand, the members of one Waikato golf club can thank their secretary for refusing to go along with a sponsorship deal with Bridgecorp which meant he was supposed to regularly mail out the company's pamphlets to members.

Gary Cave is a chartered accountant with 40 years' experience, and he is also secretary of the Waikato branch of the Shareholders Association. He says he has never thought much of Bridgecorp, and was aghast that Waikato Golf agreed to the deal. "It was very clever marketing. I think quite a few people did get taken in," he says.

Inevitably, many advisers are now arguing they were also taken in. That would certainly be the most generous explanation for an article written by a Tauranga adviser, Phillip King, for Bridgecorp's September newsletter.

In the article, King slams the media and "many lightweight commentators" for being pessimistic about the future of the non-bank finance sector in the wake of the collapse of Western Bay, Provincial, and National Finance. In words that are surely already haunting him, he notes that "others have given the matter more serious thought and research and are just as convicted in their view that the recent isolated distress has been a matter of senior management lacking expertise or discipline and a reduced vigilance within lending policies as a significant wave of funds inflow sought a perceived safe haven in secured debenture investment."

Indicating that he was aware of some of the "whisper campaigns or doomshocking scuttlebutt or generally scary news" floating around, he goes on to note that "among the owners, shareholders and senior management folk of these larger finance companies I cannot identify a kamikaze-like financial death wish in any, similarly I cannot identify a saboteur pathology among those staff that stand to benefit mightily from their business successes."

King, who was named Financial Planner of the Year in 2004, and was runner-up in 2003, is now the subject of some extraordinary claims by dissatisfied clients to whom he recommended Bridgecorp.

And it's not just small operators who have red faces. New Zealand's largest financial advisory company, Vestar, is believed to have had up to $50 million of client money in Bridgecorp before it began falling out of love with the firm.

The company, which used to be known as Northplan, was instrumental in bringing Melbourne-based ratings agency Property Investment Research to New Zealand. In July last year, PIR gave Bridgecorp an investment-grade rating which has since proved acutely embarrassing, despite the company's protestations of having qualified its opinions, and unlike auditors, giving only a "point-in-time" assessment.

And for those who wonder why 18,000 investors even bothered with Bridgecorp, when historically high interest rates meant they could have got a reasonable - and much less risky - return on their money by just putting it in the bank, Northplan's October 2006 newsletter provides a clue.

"Northplan of course uses finance companies to give a greater return and diversification for our clients," the newsletter explains. It then goes on to note, somewhat bizarrely, that "whilst a 2.5 per cent greater return over bank deposits may not sound a lot, it does produce a 42 per cent better return in terms of cash in the hand".

In fact, an extra 2.5 per cent was hardly a generous reward for investing in a company as risky as Bridgecorp. But then, many were also seduced by claims that Bridgecorp's loans were backed by Lloyd's of London, and that several credit rating agencies had given the company their seal of approval.

In fact, the receivers are likely to claw back very little from Lloyd's because of the fine print in its contracts, and the dubiousness of the credit ratings has now prompted calls for only the industry's heavyweights to be allowed to advertise their wares.

Certainly, the timing could have been better for Australian listed company MFS Limited, which paid $52.5 million to buy Northplan in December. And it's not as if MFS wasn't familiar with the territory - a company with which it is linked was also the first mortgagee in Westpoint, ahead of Bridgecorp and Hanover.

That said, it was Bridgecorp, not the advisers, who were actually running the show.

"People are blaming the Securities Commission, and advisers, and goodness knows who else, but from what I can tell there was a small group of directors who seem to be the only ones who knew what was really going on," says someone close to the company.

Evidence of the company's enormous appetite for risk was certainly there for all to see. Its involvement in the Matauri X saga, which dragged on for years, was hardly a secret. At one point it also had a significant chunk of funds tied up in a potential cure for Aids. And Petricevic's own association with failed investment company EuroNational in the mid-80s was also well known.

The performance of Bridgecorp's shares on the Unlisted market - which plunged from 20c to 10c in just six months - should also have sent some pretty strong signals that all was not well.

Then there was the Dorchester Pacific debacle. Prevented twice by an unusually hostile NZX from listing Bridgecorp, Petricevic was determined to take the company public, possibly because he needed an exit strategy. He believed a takeover of Dorchester might finally realise his ambition. But the stock exchange, and significant Dorchester shareholder Hugh Green, were not going to be outwitted so easily, and the Takeovers Panel decided the deal he had struck with Dorchester founder Brent King was in breach of the Takeovers Code.

According to a former employee, Petricevic was keen to play by the rules, and even asked the Takeovers Panel for advice. But it declined to co-operate. He was eventually forced to sell all his shares in Dorchester, when they were used as security for a loan from property investor St Laurence.

Nevertheless, the former employee is not about to defend his boss. "He was an unbelievable optimist, and he was certainly fun to have a drink with, but he had a bad case of small man's syndrome," he recalls. In fact, notes the employee archly, it did not pass unnoticed that at one stage the entire board were vertically challenged. "I can remember being at a board meeting and hearing someone say 'All they need now is Snow White'."

What did impress the employee was Petricevic's ability to party until late, night after night after night - no mean feat for someone who he estimates is not too many years away from collecting a pension. "He needed to be the centre of attention, but I don't know how fulfilled he was. He was very insecure. I remember hearing him once boasting to someone about all his assets. It was actually a bit sad."

Indeed, much has been made of Petricevic's champagne lifestyle, financed by a champagne income that was probably a world away from that of many Bridgecorp investors. Exactly how much he paid himself from Bridgecorp's coffers remains the subject of speculation, given that it is not disclosed in the company's accounts. But in 2002, it was reported that he earned $800,000 in just six months. The company's accounts do reveal that unspecified staff borrowed $4.5 million from the company in 2005, and $4.6 million the following year. The loans were unsecured.

Ultimately, it was probably Petricevic's greed that was his downfall, says the former employee.

"It's really hard in retrospect figuring out where he went wrong, but typically the loans were deals where he was getting 24 per cent [interest]. At that level, you get the highest risk, doggiest deals. He should have gone for some 17-18 per cent deals because he still could have made good money and built a quality book, instead of just going for the 24 per cent on everything."

His "unbelievable optimism" also meant he failed to exercise any caution. "He always expects that something's going to come along that will bail him out."

Not surprisingly, Petricevic's closest friends are the type of people who, like him, prefer Remuera to Ranui. They include two colourful property developers - Pat Rippin and Dave Henderson - who have themselves made headlines over the years, Archibald & Shorter salesman David Shorter, top real estate agent Ian McHerron (family member Zach McHerron was hired as Bridgecorp's corporate services manager), and two prominent architects, Colin Leuschke and Lawrence Sumich. Carrier Grant Stembridge also counts himself as a mate.

Sumich finds it hard to reconcile the public image with the guy he knows. "All my dealings with him have been personal, and he is an extremely nice guy, and very honest," he says.

Somewhat predictably, Rippin blames tall poppy syndrome for the Rod-bashing. The problem with New Zealand, he grumps, is that we never forgive people who fail.

"What people are forgetting is that Rod has also made a lot of people a lot of money over the years."

But investors who could yet lose a big chunk of their life's savings would no doubt also argue that it is Petricevic who seems to be forgetting about them. So far, he has offered no indication at all that he understands - or even cares - about their plight.

In fact, he already appears to have a new project in mind. On June 14, he registered a new company with the Companies Office, called Tintoretto Investments.

Quite how a famous Venetian painter fits into his plans remains to be seen. Among Tintoretto's best-known works is a depiction of the Crucifixion. However, he is probably better known for The Last Supper. Fittingly, there are two versions of the painting, more than a decade apart.

As the man whose job it is to make the best of a very bad situation, Waller has enormous sympathy for those struggling to make sense of how they got caught in such a web of deceit. But in this case, almost no one can afford to point the finger at anyone else, he believes.

"You can't generalise, but I think some of the brokers just weren't listening to the market, or maybe listening too much to management. But I don't really think anyone is blameless in this. The investors with all their money in one company - they need to spread their portfolio and understand risk. There's a lot of people who don't understand, and I respect that, but they've got to make sure they get quality advice and spread their investment portfolio around."

As for trustees, they are entitled to rely on the information being given to them by management, he says. As are directors.

"The thing is to learn from it. This is all a bit like 18-20 years ago when you had all the contributory mortgage companies falling over. It's much the same type of situation. It's like we've moved on 20 years and the same thing is happening, but just in a slightly different sector."

Ultimately, it's hard to go past the same old boring lessons, says Waller. "It's like a lot of things in business - it comes down to quality of management and quality of governance. If you have quality management, who are experienced, and prudent, with strong governance, then you should be able to withstand most sorts of problems.

The Board

* Bruce Davidson (non-executive chairman): Commercial lawyer and consultant to Minter Ellison Rudd Watts, former president of the Auckland District Law Society, active in the Anglican church, acts for several charities and private companies. Chairman since 1988.

* Rod Petricevic (managing director): Former partner in Fay, Richwhite and founder of investment company EuroNational. Director since 1993.

* Robert Roest (finance director): Accountant with a background in industry, commerce and finance. Director since July 2006. Also board secretary.

* Gary Urwin (non-executive director): Former Kiwi accountant now based in Sydney, former head of Horwath Corporate (Horwath bought him out after the Digitech disaster), director of the Urwin Fernandez group. Director since 2003.

* Peter Steigrad (non-executive director): Former chairman of Young & Rubicam Asia Pacific, based in Sydney. Director since 2002.