Dominion Finance puts up fight

By MARTA STEEMAN & ROELAND van den BERGH - Businessday | Thursday, 11 September 2008

Dominion Finance Group intends to fight the receivership imposed by trustee Perpetual Trust.

Dominion Finance deputy chairman Terry Butler is leading the charge.

He said the company was writing to debenture holders to gather the 10 per cent of debenture holders needed to call a meeting to get support for a company proposal to wind down under the oversight of an independent specialist as had been agreed for sister company North South Finance.

Yesterday, the trustee for debenture holders in Dominion Finance, Perpetual Trust, announced that receivership was in the best interest of investors.

In April, Perpetual rejected Lombard Finance's proposal for a wind down and placed the company in receivership.

Four other failed finance companies are expected to put proposals to trustees.

Dorchester Finance has put a deferred repayment plan to Perpetual Trust and New Zealand Permanent Trustees.

Strategic Finance is expected to seek a capital restructure and ask debenture holders to be repaid over five years and both Hanover Finance and St Laurence are also expected to put up proposals where the shareholders inject more capital and seek deferred payment to investors.

Dominion Finance has 6,055 debenture holders with $224 million invested. Perpetual Trust appointed Rod Pardington and Barry Jordan, of Deloitte, as receivers yesterday.

Louise Edwards, chief executive of Perpetual Trust, said it was up to the receivers to decide how the company was run and what, if any, management to keep and how to execute a wind down.

Perpetual had undertaken a extensive review of the company and loan book and decided receivership which was the best course to protect investors' interests.

Receivership was a tried and tested and clear-cut route, she said.

A moratorium (of payments to investors) was complicated, cumbersome, and largely untested and had to operate over several years in unpredictable circumstances, though could be the right choice in some circumstances.

"In the case of Dominion Finance Group, we consider receivership to be the preferable course of action as opposed to other alternatives such as a company-managed wind down under a moratorium.

"In particular, debenture holders ... will benefit from the statutory powers of receivers to ensure their interests are best protected."

The receivers would prepare and send debenture holders a report on their initial findings as soon as possible.

Covenant Trustee Co managing director Graham Miller has agreed to a moratorium for sister company North South Finance where the company's proposal for a wind down is run by North South management and overseen by Korda Mentha.

North South Finance (NSF) owes about $100m to about 7000 investors, with about a third owed to Halifax Bank of Scotland (HBOS) and ASB Bank. Miller said both banks support an orderly wind-down plan for NSF.

Butler said to overturn the receivership would require 75% of debenture holders to vote against it.

His immediate family held $4 m of debentures, about 1.8% of the total. He had the support of the Dominion Finance Board and believed he would also get backing from HBOS which held more than 10% of the debentures.

"The support we are getting I don't think 10% will be a problem," Butler said. He said HBOS could call the meeting by itself.

It was debenture holders' right to decide what happened to the company. Receivership was "a disastrous situation and a bizarre one," Butler said.

Perpetual Trust and Covenant are the two trustee companies that have acted as trustees for most of the failed finance companies.

The trustees have come under fire for not asking for more information from finance companies and taking a tougher stance with them.