Capital Merchant Finance and Perpetual Trust case settled

KordaMentha's Grant Graham

The long-running case between the receivers of failed finance firm Capital+Merchant Finance and trustee Perpetual Trust has been settled for a confidential amount.

The case, originally brought in 2012, was supposed to have its first hearing today in the Auckland High Court today and was expected to be a $94 million claim based on an alleged breach of Perpetual’s duty of care.

Receivers Grant Graham and Brendon Gibson of KordaMentha have issued a brief statement saying details will only be given in their next report.

They have declined to give further comment but say they will contact debenture holders in mid-December about distributions.

Capital+Merchant collapsed nine years ago owing 7500 investors $167 million. Nothing was recovered for debenture holders from the finance company’s assets and the only money for them so far is from an $18.5 million settlement with the firm’s auditor BDO Spicers.

The receivers paid for the case using money provided by litigation funders, understood be Australia-based Litigation Lending Services, with support from New Zealand’s LPF Group.

Receivers’ reports indicate litigation funders have contributed $1.3 million between May 2013 and May this year.

Of the $167 million owed to investors, $90.7 million was in so-called “capital secured” debentures covered by an insurance policy. Under the terms of the trust deed, loans classed as capital secured could not be sold except for cash equal to the principal and interest outstanding.

It is alleged that two finance deals involving financiers Diversified Mortgage Trust and Fortress violated those terms, leading to the loss of insurance recoveries when Capital + Merchant collapsed and that Perpetual should not have approved them.

Capital + Merchant’s legal adviser, Stace Hammond, also settled with receivers for an undisclosed sum, although its payment is held in trust pending the outcome of the Perpetual case.

Perpetual Trust is now part of the Perpetual Guardian group, which is expected to file a prospectus for an NZX float in November 16.

In financial statements filed last week, Perpetual Guardian said the legal action is being handled by its insurer and that any outcome would be adequately covered by its insurance.

“The directors of PTL do not believe that the company owed a duty to CMF as alleged and believe that no payment should be awarded,” they said.


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7 Comments & Questions

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What can I say.
The ethics of some people are deplorable

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So after 9 years it looks like I'm going to get a bit more of my investment back. KordaMentha I know you have already told me that you won't be, but could you reconsider court action against the criminally neglectful ex govt department the Securities Commission. Not one receiver is prepared to take the govt to task over the finance company debacle, even though they have an extremely strong case. I have been told in confidence that no action has been taken for "commercial reasons" Wink wink.

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I am sure those commercial reasons are simply weighing up how much and litigation would cost against the likelihood of a result and payout.
Its a tough call for receivers to choose to pursuit litigation because the outcomes are uncertain and the costs can be significant.

Sadly, I don't see the FMA being much better than the Securities Commission so again all I can stress is 'buyer beware'.... if it sounds too good to be true it is because it is.... ask yourself... if I am earning more than bank deposit rates then what risk am I taking.

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Litigation isn't that tough a call for receivers where they have litigation funders in place like the Receivers did against Perpetual.

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The litigation funders aren't a bottomless pit of money - if they don't like the chances of success, they're not going to fund just to give it a go.

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Buyer beware has nothing to do with it. We're talking about criminal business activities that went unnoticed and ignored by a govt department that was only set up to watch-out for, and prevent this sort of thing from happening. Plus the outcomes are not uncertain, if you are in the right. Does Equiticorp ring any bells for you..

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Good point J. So if they are prepared to fund that is a good indicator of it being a good case? On that basis I hope Korda Mentha made Perpetual pay big money on this settlement.

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