Bridgecorp trial told of 'abnormal accounting'

(L- R) Former Bridgecorp directors Rod Petricevic and Robert Roest. Photo / Brett Phibbs

Failed finance company Bridgecorp was paying out cash it didn't have and was borrowing millions leading up to its demise, the High Court heard this morning.

The trial of three former Bridgecorp directors - Rob Petricevic, Rob Roest and Peter Steigrad - continues today in the High Court in Auckland.

Bridgecorp lent money for property developments and collapsed in 2007, owing 14,500 investors $459 million.

The trio on trial face 10 Securities Act charges brought by the Financial Markets Authority (FMA) for allegedly making untrue statements in the investment statements, registered prospectuses and extension certificates of Bridgecorp and Bridgecorp Investments.

The three directors deny the charges, while two fellow directors Gary Urwin and Bruce Davidson have pleaded guilty to the charges.

The trial resumed yesterday and is expected to run until March next year.

Questioning of the company's internal audit and risk manager Indra Kumar continued today.

Throughout the morning, Kumar ran through balance sheets and letters detailing various loans and transactions over the 2006 and 2007 period.

Also over this period, Bridgecorp was facing "cash flow difficulties" as it was paying out higher interest rates on loans than it was receiving on the same amount.

"Physically you are paying out cash every month without cash resources," said Kumar.

He said Bridgecorp could access extra funds through subsidiaries which took out loans.

Monice Properties, a subsidiary of Bridgecorp, was used to borrow funds on a number of New Zealand properties.

Kumar said Bridgecorp could and would have accessed these funds borrowed by the subsidiary.

The loans were borrowed by Monice Properties, but signed off by Petricevic and Roest as covenantors.

While questioned, Kumar also said the company had used abnormal accounting practices. Bridgecorp also borrowed from finance company Hanover, which collapsed in 2008.

The trial continues.