29 May 2014

Hubbard 'authorised problem loans'

8:59 am on 29 May 2014

The role of the former chairperson of South Canterbury Finance, the late Allan Hubbard, has again taken centre stage at the trial of three of its directors.

Lachie McLeod, Edward Sullivan and Robert White are defending 18 fraud charges brought by the Serious Fraud Office at the High Court in Timaru. The trial is being heard in front of a judge alone.

From left: Edward Sullivan, Robert White and Lachie McLeod.

Former SCF directors from left, Edward Sullivan, Robert White and Lachie McLeod. Photo: Mytchall Bransgrove

The charges follow the 2010 collapse of South Canterbury Finance, which cost the taxpayer $1.7 billion because it was covered by the Government's Retail Deposit Guarantee Scheme, however the Serious Fraud Office described Allan Hubbard as a person of interest.

Mr Hubbard died in a car accident near Oamaru in September 2011.

On Wednesday Grant Graham, an accountant, independent auditor and an expert witness for the SFO, read a letter from Mr Sullivan describing a paper loan Mr Hubbard made to Kelt Finance to effectively cover up related party lending - one of the main areas of interest to the SFO.

Another letter was read in which Mr Hubbard tried to blame SCF's chief financial officer Graeme Brown for the loan, even though it was his signature on the contract.

Grant Graham giving evidence on Wednesday.

Grant Graham giving evidence on Wednesday. Photo: RNZ / Conan Young

Mr Graham said that SCF's directors misled investors by claiming in a prospectus that they had the backing of a major bank when its support had been withdrawn.

He said claims the company in 2008 had a loan facility of $150 million from the Bank of New Zealand would have reassured investors at a time when many banks were on the verge of collapsing in the global financial crisis.

Mr Graham said $50 million worth of the facility had in fact expired, and the remaining $100 million was not available to SCF.

He testified to a string of deficiencies in the way the company handled its loan book and there was a lack of realistic strategies for repaying loans.

Mr Graham said many of the problematic loans were authorised by Mr Hubbard and the only record kept was in the form of a typed ledger card.

South Canterbury Finance made a belated attempt to properly account for the lending, but was hampered by the lack of proper records, he said.