Taxpayer wearing whiff of failure

So much money has been lost in finance companies and high risk property lending that large chunks have disappeared without exciting much comment.

How much has gone? Is it less than $100 million? Oh dear, how sad, never mind.

Yet as time ticks by Chalkie continues to stumble over flotsam from the wrecks of those financial rustbuckets, some of it involving quite a lot of money.

One finance company still owes many millions to taxpayers after its collapse two years ago.

Like others of its ilk, it had become embroiled in unfortunate transactions, in this case complicated by an Inland Revenue investigation. The situation was so toxic, it seems, there were concerns it could taint the good name of a respectable retirement village operator, currently mulling an initial public share offer.

The finance company, Vision Securities, eventually called in the receivers on March 31, 2010.

At the time it owed debenture investors $28.9m, all of whom got their money back courtesy of the Government, which had agreed to guarantee Vision's deposits back in December 2008.

The Government looks likely to take a bath on the deal, however. Two months ago receivers sent a cheque to the Treasury for about $4.5m in the first repayment so far, representing a return of 15c in the dollar. That's more than the 9c they initially expected, but it's doubtful how much more is in the pot.

Vision Securities was a specialised property lender set up in 2001 by the founders of retirement village operator Vision Senior Living, Peter Bourke and Bob Foster.

Although it did lend money to retirement village developments run by Vision Senior Living and other related parties, those deals were a minority of the loan book.

It was readily apparent from the prospectus that the lending was high risk - there were few loans, 15 or 16, and almost all were backed by second ranking security on property development projects. As a finance company, this one was admirably frank about the nature of its business.

Among the loans was one to an ambitious retirement village project in Auckland being developed by Paul Webb and Andrew Tauber, collectively known as Honk Group.

The idea was to build a 200-unit village on 3 hectares next to Selwyn College in the eastern suburb of Kohimarama. The land was on a 150-year lease acquired by Tauber and Webb's company Education Holdings from owner Ngati Whatua O Orakei Trust Board in September 2006.

Education Holdings financed the scheme through Capital & Merchant Finance and Chalkie understands Vision Securities took a slice of this debt, one of several deals it did with CMF. Companies Office records show Vision Securities registered a general security agreement over Education Holdings' assets in September 2006.

It was a transaction Vision came to regret.

What happened next is somewhat murky, but Education Holdings transferred the lease in December 2008 to a new company, Education Holdings (2008), with Tauber and Webb relinquishing 75 per cent of their ownership to interests associated with Vision Securities.

This was a curious transaction in several respects, particularly from the Inland Revenue's point of view. After Tauber and Webb moved to liquidate the old Education Holdings a few months later, the IRD obtained a court order revoking the liquidation and reinstating it to the register pending its own investigation. Liquidators' reports indicate the investigation is ongoing - presumably part of the wider IRD probe that triggered the famous raid on Honk-related premises by tax officers last year.

The amount of debt racked up on what was still bare land was also surprising. One document suggests CMF's loan to Education Holdings amounted to $10.6m, for a lease with a council value of $4.7m, plus a 450sqm section acquired for $600,000.

At the time, the project was still to obtain the council rezoning required to build a retirement village on the site.

The size and structure of CMF's lending to Education Holdings is understood to have attracted scrutiny from regulators, who wanted to know whether CMF's principals had undisclosed interests in the project. Three CMF directors - Neal Nicholls, Wayne Douglas and Owen Tallentire - currently face charges laid by the Serious Fraud Office relating to transactions allegedly in breach of the trust deed. Nicholls and Douglas also face charges alleging undisclosed related-party lending.

Chalkie should make clear at this point that there is no suggestion Vision had any knowledge of, or involvement in, the matters of concern to the SFO.

How much Vision committed to the original Education Holdings deal is not clear, but by March 2009 its loans to Education Holdings (2008) totalled $5.7m, disclosed as a related-party loan because three Vision directors were on the company's board.

Companies Office documents show the loan ranked behind lending from HSBC.

No mention was made in the accounts of Vision Securities' 75 per cent stake in Education Holdings (2008), held through Kohimarama Trust, a company whose ownership is shrouded from the public by a lawyer's trustee firm.

The $5.7m loan was due for repayment on December 2, 2009, but it is not clear whether the money was recovered. The size of Vision's liabilities at receivership would suggest not.

However, it appears there were enough looming troubles at Vision Securities for its sister company Vision Senior Living to become concerned. In December 2009, Vision Senior Living approved a new constitution requiring Vision Securities, as a shareholder, to stop using the Vision name and "remove any references or suggestions in its branding to any business or commercial relationship with ".

The reek of Vision Securities was clearly something to back away from.

Meanwhile, the Kohimarama project continues to hang around. Last year the land was marketed for sale. Among interested potential buyers was Vision Senior Living, but it apparently found the price too steep and the land failed to sell.

Oddly, although property and company records suggest Vision Securities was still the majority owner, Tauber fronted as vendor and Vision Senior Living executives were apparently unaware of the sister company's stake. Anyway, Chalkie reckons the high asking price means the debt is more than the property is worth and somebody will have to take a haircut if the property is ever to be developed.