Securitibank rulings needed to help liquidator

Press, 25 May 1977, Page 7

Securitibank rulings needed to help liquidator

PA Auckland The liquidator of the Securitibank group has asked Mr Justice Barker for directions on a number of questions needing an answer before he can proceed with the winding up of the com-; panies. Without directions from! the Court, the would have difficulty in I making any progress on the I liquidations. Before the hearing began) in the Supreme Court at Auckland his Honour ruled) on an application heard in) chambers on behalf of developers in Christchurch. It related to the represen-1 tation of the Christchurch: developers at this hearing.! They claimed that Mr C. B. Cramp, who had been appointed the representatives of the developers (outside bill drawers) was not representative of them. His Honour ruled against them. He ordered the hearing of! the motion to proceed and; granted those in the appli-i cants’ category the right to appear at their own expense! at a later hearing. He said the hearing had been given a priority fixture) and would last several! weeks. That had been done because of the extent of the collapse of the Securitibank companies, the large number; of citizens involved in the collapse and the stalling of) th - liquidator until the questions had been answered. By the liquidator seeking i directions of the Court, he! was forestalling delay and saving the cost of numerous; individual actions. His Honour ordered costs) of representatives and coun-i sei assisting the Court to be paid from the funds of the; liquidation. He added the) proviso that the Court could) direct any portion of the; costs to be borne by creditors or charged against the realisation of assets. Mr J. A. Farmer, who appeared with Mr J. C 'King and Mr G. B. Robertson for the liquidator. said the Judge’s directions would enable the liquidator to! administer the liquidation' with the knowledge of hisi legal powers in relation to I th“ enforcement of mortgage) securities and to apply the |

I proceeds in accordance with the rights of creditors. ’ The two main questions' ; put to the Court were: Which persons or classes f of persons, if any, are entitled to enforce mortgages, i or to sue on promissory notes given by clients to Merbank Corporation, Ltd, in respect of acceptance and ■ other facilities given by the ) latter to the drawer of bills? Which persons or classes of persons, if any, are eniititled to the benefit of proceeds (if any) of the enI'forcement of the mortgage and other securities and/or to the proceeds (if any) of j the promissory notes reJferred to in the above ques-; ;tion. Mr Farmer said many . people had claimed that they • bought bills on the strength , of representations that those i bills were “backed” with mortgage securities and that ; the bills were therefore “secured bills.” He said the Court would) ; be asked to rule on whether J the holders of the bills were ) ijin law secured creditor., of ■the group or unsecured creditors along with depositors I and other ordinary’ creditors. i Alternatively, he said, II were those people entitled to > the benefit of securities ■ through some sort of trust. Another question for determination is the enforcement of mortgage securities !at present existing in the jname of Merbank. | Mr Farmer said that if it jwas found that those mortgage securities belonged to I bill-holders, the ability of the liquidator to enforce them needed determination. ; If the liquidator did not •) have any such powers, there : I would be an urgent need for tthe liquidator to enter into some kind of arrangement ! I with bill-holders to enable :'him to take action on their; behalf, or for bill-holders to appoint an independent representative to enforce securities in an ordinary way. He said there were ques- ■ tions whether the failure of ■ bill-holders to observe legal requirements on presentment (for payment and service of | notices of dishonour could ;) effect their legal rights under the bills. ) At least four mortgagors, !Mr C. B. Cramp, Christ-

church Properties, Chateau i Commodore and Rudyard ) Developments, had raised i I the question as to whether ; 'mortgage securities given by ;them are invalid as con- 1 ;travening the Moneylenders i Act. ;< Merbank held a money-)I lending licence but it is ’ claimed by the four that the; act was not observed in !< documentation in funding or i financing developments under I joint venture agreements not < in relation to acceptance and 1 discounting of bills within jthe group, j Mr Farmer said that a court hearing on money- i j lending aspects of the I ■groups’ transactions was to;' jbe deferred until August. |1 It became apparent to the I provisional liquidators, he said, that the complexities 1 and inter-relationship of ' transactions and relation- 1 ships within the group and • with the investing public ' wen immense. I ] ) Mr Farmer said that if the ( I matters were left to be t ■ determined in the ordinary way, the liquidation would h«ve been paralysed for j. about three years and the ( piecemeal nature of such , court proceedings would | ( have led to inequitable dis- ( tortions. As well, delays would |j cause increased losses to the j liquidation and expenses for j j many court hearings. He said the total face;, value of client bills wash

$43,700,000. Client bills are those drawn by clients, made payable to themselves and accepted by Merbank. Investor bills, those drawn by Commercial Bills, Ltd, made payable to itself and jaccepted bv Merbank, totalled $25,735,241 on face value. There was inter-group indebtedness with $12.2M owed by Commercial Bills to Securitibank and SB.SM owed by Securitibank to Merbank. Securitibank owed S2M to unsecured depositors. Those people put money into the money market division of Securitibank and the moneys were used by the company )for funding purposes in the i group. Securitibank, at the time of the collapse, had a bank overdraft of S3M. That figure represents shortfalls and cheques which bounced on the day. Securitibank, said Mr Farmer, was the banker of the group. Overdrafts with three banks were secured by debentures. There was a provision for bad debts on acceptance credit facilities of S6M to Merbank. At the time of the icollapse it was known that I Chateau Commodore and Manners Street Plaza were | in difficulties'. j Mr Farmer said'the property financing was a major j proportion of the group I operation at the time of the I collapse.