RSL liquidator sees problems

Press, 27 December 1989, Page 26

RSL liquidator sees problems

Special correspondent Auckland Liquidators of Registered Securities have recovered principal from about half the 206 mortgages outstanding at the time of its collapse in July, 1988. But shortfalls are common and, of the remaining loans, only two are not in arrears. Liquidator, Mr John Tuck, said distribution to investors under the specific trust system which Mr Justice Barker opted for in a judgment delivered last Wednesday would be a much harder process than he had hoped. Instead of the global trust system, under which all money recovered would be pooled for distribution, Mr Justice Barker said the money in every mortgage should be traced back to the particular investors allocated to that mortgage by RSL. Under that system, some investors will get their money back — minus costs — while others will get nothing. Under the pooling system, all investors would have got about 58.5 cents gross in the dollar. Some other matters relating to distribution and costs are to be argued in the High Court on February 7. The liquidators supported pooling. Evidence in its favour was given for them at the November hearing by accountant Mr John Waller, liquidator for Landbase, where pooling is being used. Mr Tuck said it would be much more complicated to trace money back to investors and work out what each of the 8500 investors was entitled to. “We have set up a new computer programme to cope with this. The present system was set up to pay them out every quarter, irrespective of whether any interest had come in.” Mr Tuck said another complication would arise from the judge’s order that payouts of interest be made at the rates specified in investors’ individual contracts. - Rates authorised for investors varied from those charged on mortgages and, in some cases, the required payment would be greater than the mortgage interest rate, he said. RSL had $9B million of investors’

money spread over 206 mortgages. Recovery has been completed in 92 and is proceeding on 12 more, though further action is being taken against guarantors on top of those recovery sums. Excluding four large borrowers — RSL director Chris Boyle’s Manukau Park borrowings of $26 million (plus $8 million interest at April this year), Terry Fidow’s $7.6 million and $6 million for two Northland hotels — the return so far is about 50 per cent. The liquidators have $24 million in a trust account ready for distribution as soon as they can establish who should get how much. In reaching his decision, Mr Justice Barker outlined broad reasons why RSL’s situation could be distinguished from that of Landbase. RSL’s allocations of investors to mortgages were usually made around the time of the advance, as opposed to Landbase’s monthly allocations. It was often arbitrary, except for investors who wanted specific investments, and was carried out with more care than at Landbase. Mr Justice Barker said RSL’s mortgage ownership certificates to mortgagors accorded with the information in the records, whereas at Landbase there were substantial discrepancies. Whenever an RSL investor’s funds were reallocated, replacement ownership certificates were usually issued accurately and immediately, but at Landbase they were usually not issued. Landbase sometimes allocated money to mortgages that were already repaid and discharged, but this did not appear to have happened at RSL. Landbase also sometimes allocated more to a mortgage than was owing, but this, too, did not appear to have happened at RSL. RSL followed specific directions from investors, the quality of its recordkeeping was closer to that of Mortgage Management, where the global trust argument was rejected, and the shortfall was easily identifiable as being a debit due from RSL’s parent company, N.Z. Mortgage Guarantee Co.