KEY POINTS:
Debenture holders in the two distressed Dominion Finance subsidiaries are outraged their matured investments have not been paid out - something commercial law experts say could be in breach of the terms of the trust deed.
Dominion Finance announced on Tuesday that it was considering suspending payments to debenture holders after becoming concerned about the liquidity of the two subsidiary companies, but the proposal would still require investor approval.
One investor had $2500 with one of the subsidiaries, North South Finance, maturing on Wednesday. When the money was not credited to his bank account, he called the company - only to be told that a moratorium was in place, and that "everything's frozen".
He knew the moratorium proposal still required investor approval, so he called trustee Perpetual Trust, to be told that while there was not technically a moratorium, it had given the okay for funds to be frozen.
Louise Edwards of Perpetual Trust did not return a Business Herald call for comment, nor did Dominion chief executive Paul Cropp.
The investor said he still had a total of $10,000 tied up with North South and Dominion Finance, with another sum of $2500 maturing early next month.
"Its credit rating looked to be among one of the better ones. I've come to realise that that doesn't mean a lot."
Another investor did not get her $20,000 investment with Dominion Finance paid out when it matured on Monday. When she called up, she was told there had been a problem with the computer system but a cheque was being sent out to her.
When news of the company's troubles broke late on Tuesday, her husband called the company to be told that the cheque - which they had not received yet - would be dishonoured if they tried to bank it.
The cheque arrived yesterday, and they said they would try to bank the cheque, but were not holding out hope of getting their money back.
A commercial law expert, who asked not to be named, said Dominion Finance could be in breach of the terms of the trust deed.
"The short answer is that as and when these debentures mature, they become debts due and if they're not paid, the company's technically in default."
Another legal expert with a large law firm said it was the trustee that would normally enforce the security on behalf of the debenture holders.
He said individuals could take their own legal action to recover the debt, but it could cost more to recover the debt than what was actually owed.
The move came as the company yesterday announced that it had called in experts to help with its proposal to temporarily freeze repayments to investors. The move to discuss a moratorium took many market watchers by surprise, as the company had been previously regarded as well-run with an experienced management and board, and was tipped as likely to ride out the current unfavourable market conditions.
The $276 million owed to 13,000 debenture investors by the two Dominion Finance subsidiaries takes the total funds tied up in failed or troubled companies to about $2.38 billion.
The Business Herald understands the company had run into trouble after reinvestment rates plummeted from around 45 per cent to just 15 per cent. At the same time, property developers who owed the company money were finding it hard to sell their projects on completion.
The NZX is investigating whether the company breached continuous disclosure rules about its situation.
Questions have also been raised over the timing of Dominion's latest attempt to raise more cash - writing to investors on May 23 offering them secured first ranking debentures at between 10.75 and 11 per cent interest for up to 18 months.
Dominion Finance investors with a story to tell can contact the Business Herald - business@nzherald.co.nz
