Related party loans hurt Clegg and Co debentureholders
Investors in failed finance company Clegg and Co are likely to between and 70 and 85 cents in the dollar back, but could have ended up with a better result if it wasn't the state of some related party loans to the firm's principal.
Thursday, 22 November 2007
The receivers say the finance company failed because it had breached its trust deed.
"There was an obligation on the company to maintain net assets in accordance with the terms of the trust deed, as well as imposing a limit on the extent of advances to related parties. During recent months, the related party advances to Cleggs have exceeded the requisite limits.
"After due consideration of all available options the trustee determined that steps needed to be taken to protect the interest of stockholders, resulting in the appointment of receivers.
In its report the receivers say there were two key related party loans, one of $3.05 million and the other of $153,231. Part of the debt was secured by a first mortgage over Brian Clegg and Pamela Nicholas-Clegg's Algies Bay home.
This home is now on the market and the receiver says once it is sold there is still likely to be a shortfall of around $2.5 million in related party loans.
The receiver says other steps are being considered to recover the money, however hopes of success don't appear high.
Two scenarios of recoveries have been presented to creditor. If it eventuates there will be a low overall recovery the receivers suggest only $550,000 of the more than $3 million in related party loans will be recovered. In the high recovery scenario it predicts that amount will rise to $660,000.
The receivers say are looking at selling the company's assets, however they warn that the business is not for sale at a discounted price.
Currently the receivers are managing the business. It says a substantial portion of the loan book is not due for settlement. It will continue to collect installments and encourage early settlement of loans at net book value.
It acknowledges there are a number of loans overdue for settlement and a desire to refinance the loans with other companies. However, in the current market that is proving difficult to achieve.
Overall BDO say investors should get between 70 and 85c in the dollar back after its fees and expenses.
It does not predict that investors will get any of their interest payments. A first dividend of between 10 and 20 cents in the dollar is expected to be paid before Christmas and a further dividend in late February early March. The quantum of the second dividend will be dependent on the success in achieving early settlement of loans.
Commenting is closed
Weekly Updates including news and commentary
Today's Best Bank Rates
Today's Top 5 Deposit Rates
Find a Rate
Cash PIE Rates
6 June 2017
4 May 2017
10 April 2017
12 January 2017
Disclaimer - Every possible effort has been made to keep the information in the tables and on this site as accurate as possible, however, neither the publisher, Tarawera Publishing, nor anyone engaged to compile the rates and this site accept any liability for inaccuracies or any loss suffered as a result. It is strongly advised that readers check loan details with providers. The full terms and conditions of this site can be found here.
© Copyright 1997-2017. Tarawera Publishing Ltd. All Rights Reserved.