KEY POINTS:
Within hours of receiving complaints yesterday, the Commerce Commission took the unusual step of announcing an investigation into whether Hanover Finance had misled its investors and the public.
"The investigation is into whether Hanover Finance has breached the Fair Trading Act by making misleading representations to prospective investors and/or the public generally," the commission said yesterday.
A spokeswoman said the commission had received complaints about Hanover early yesterday, less than a day after the company, owned by Eric Watson and Mark Hotchin, said it was freezing repayments of interest and principal to 16,500 investors owed $554 million.
The commission "doesn't normally come out with anything at all at this early stage", she said.
But pressure to act had come on it "from a million different sources".
Hanover's difficulties have given its one-time advertising claim that it was strong enough to withstand any conditions a hollow ring.#But the commission spokeswoman said the investigation was not necessarily about advertising.
Misrepresentations under the Fair Trading Act could be made several ways, including verbally, in a firm's prospectus and in letters to investors or the public.
Conviction for misleading conduct can result in fines to a maximum $60,000 for individuals, or $200,000 for companies.
The spokeswoman also said the Commerce Commission was investigating two other finance companies which she would not name.
A finance company expert yesterday told the Herald he was "not optimistic" about the level of likely returns to Hanover's debenture investors but it was far too early to make estimates.
The expert, who did not wish to be named, said Hanover's lending was not "top notch".
"The reason people have been asking questions of Hanover for some time is that they know that the projects it is supporting are generally very big and are in trouble. They're just not worth what they used to be.
"For Hanover to get back what it put in as probably second mortgagee or similar is a big ask."
Those projects include Dave Henderson's Five Mile development near Queenstown and the nearby Jacks Point project. Both have been the subject of rumours for several months and Hanover placed a Henderson company associated with the Five Mile project in receivership last week.
Commentators have also raised concerns about the amount of money loaned by Hanover Finance to borrowers ultimately controlled or associated with Mr Watson and Mr Hotchin, although the expert said the level of such lending had fallen significantly in recent months.
Hanover Finance yesterday told the Herald that of $86.5 million in dividends it had paid out to Mr Watson and Mr Hotchin over the last two years, just over $70 million had been used by them or their companies to repay "related party" loans.
All related party lending was scrutinised by Hanover Finance's board.
The company said a recent transaction related to the Jacks Point development which involved Axis Property - formerly known as Hanover Property - had reduced the level of related party lending on its book.
The company refused to comment on recent transactions the Herald understands involved the transfer of assets from Hanover Finance to Hotchin and Watson-owned Omara Property Group.
