A timber processing company the Northland Regional Council loaned $750,000 to went belly up three years later, prompting fears the amount may have to be written off.

Marsden Pt-based Resource Enterprises, located on a 2ha site owned by Marsden Maritime Holdings, took industrial grade logs and exported the flitch (slabs of timber cut from the tree trunk) to Saudi Arabia.

Marsden Maritime Holdings cancelled the lease and took possession of the site at the end of July.

The company opened in 2014 but stopped operating in May 2017, due in large part to a significant increase in the price of local logs, as well as factors pertaining to international wood trading.

Advertisement

It has not paid interest of $14,348.81 due in March and $14,348.81 in June, although it's still trading.

The directors of Resource Enterprises are Maher Jammal from Dubai, Salman Jammal of Kuwait and Auckland-based Colin Theyers who said he needed to liaise with the other two directors before making a comment.

NRC chief executive Malcolm Nicolson said councillors at their monthly meeting this week voted to record the almost $820,000 owed by Resource Enterprises as an "impairment loss".

The amount is made up of $69,933 of interest plus the principal amount of $750,000, creating a loan balance of $819,933.

The loan balance is not due to be repaid until March 5 next year but Nicolson said NRC was uncertain if it would recover the outstanding money.

However, he said recording the loan as an impairment loss in no way discharged the financially beleaguered company of its legal liability to repay the loan.

"We are taking legal advice, we've written to the company so from our position, we'll put the company directors on notice that we expect payment. The company still has stock and other assets," Nicholson said.

Since NRC was the second secured creditor, he said the current market value of the company's assets was estimated to be less than what it owed to the first secured party which initially was ASB before other investors took over.

Advertisement

He said the loan, from NRC's Investment and Growth Reserve set aside to support economic development, was made after the Global Financial Crisis when there
was a real need to stimulate Northland's economy.

"The decision to invest was not made lightly; and a raft of investigation and due diligence was done, including advice being sought from a reputable forest wood processing consultancy.

"We looked at a range of companies, a range of options and went through an evaluation process and at the end of the day, the council felt comfortable in investing in this company, based on the business case that was developed at the time."

Nicolson said NRC has been in talks with the company since it stopped trading to try to get it back up and running.

Northland Regional Council chief executive Malcolm Nicolson. Photo / John Stone
Northland Regional Council chief executive Malcolm Nicolson. Photo / John Stone

He said most of the company's woes were linked to a large increase in local log prices, which rose about 40 per cent from 2014, drastically reducing its ability to secure the logs it needed for processing at a price that allowed it to compete on the export market.

While the possibility of a loss was obviously regrettable and a source of disappointment, he said it was important to note it would not impact on ratepayers' bills directly.

The Taxpayers' Union said the investment loss showed elected officials were not well-placed to judge business investments.

"Even if Northland regional councillors did have business expertise, the fundamental problem is that they're spending other people's money, so have nothing to lose should the investment fail," union spokesman Louis Houlbrooke said.

He said it made them susceptible to snake-oil salesmen and temporary political fashions.

Officials would be better off investing money in the basic functions such as resource management and transport services ratepayers expected from a regional council, he said.

Houlbrooke said the idea that Northland ratepayers should be glad they were not directly impacted by the investment failure was laughable.

"On paper, the money may have been ringfenced for investment, but it still could have been used for core services, or even returned to ratepayers, if the council had the will."

According to Northland Inc at the time Resource Enterprises was opened, the mill was expected to employ about 20 people under full production and have an estimated economic impact of about $20 million.