More on Hubbard

In the last few days a lot more has come to light regarding Allan Hubbard and how he conducted business.

Bernard Hickey has written an article which seeks to set Hubbard in the context of how many in NZ view business in general. Bernard makes a number of interesting points. The thread of comment to his piece goes some way to corroborating what he says in the article concerning attitudes to business, and the contrast between major cities and provincial NZ. Furthermore, much public comment seems to be of the Hubbard is a good guy, so why give him a hard time variety.

When reading Bernard’s piece it is useful to have read some recent articles in The Listener which not only included a profile of Hubbard and a later companion piece relating to his placing into statutory management, but a look at the finance companies more generally, plus an article on Hanover.

The Grant Thornton interim report issued this week makes for extremely interesting reading. This article in the NZ Herald looks at some aspects. The report,to my mind at least, raises questions and concerns, consider this from the NZ Herald article:-

investors’ loans appear to have been made to farms associated with Allan Hubbard and rank behind loans from banks. Investors face losses on these investments, it added. “This could mean, in the case of direct investments in those farm businesses, that Aorangi would only be paid after the creditors of those businesses were fully paid,” Grant Thornton said.

Some loans were also made from trusts to businesses on interest free terms.

Grant Thornton warned there was a risk investors owed NZ$96 million may not receive all their money back. It also announced and additional NZ$70 million invested in Hubbard Management Funds (HMF) had been frozen and it was also concerned about inadequate records for these funds.

It should be noted that lonas on an interest free basis are not evidence of wrong doing.

Now when all this blew up, Hubbard was on the radio saying he just needed time to get the records in order. Yet he was handling tens of millions of dollars and the paperwork would it appears have been deficient.

The managers go on to say:-

“A lack of paper work is also impeding our progress. The standard of the paper work for the entities is not what we would have expected to have found for business entities of this size and complexity. As a result, we will need some time to complete a review of the position and to decide what action is needed,”

There appears as well to be a large number of related party transactions. This comment by the managers is relevant:-

“From our work so far, it appears over NZ$106 million is invested in (including by loan to) businesses and charitable trusts where Mr and Mrs Hubbard have a direct or indirect financial interest.”

“Some investors, who believed their investments were secured over land, may not in fact have this security,” it said.

“The level of investments in (including loans to) businesses associated with Mr and Mrs Hubbard without registered security is of concern. Most of these investments are in or to farm businesses that have loans from banks secured by a mortgage over the assets of the farm. This could mean, in the case of direct investments in those farm businesses, that Aorangi would only be paid after the creditors of those businesses were fully paid,” it said.

“There may therefore be a risk in certain circumstances that Aorangi does not recover all the money due to it.”

As a result of their work so far another Hubbard entity Hubbard Management Funds, with some $70 million has been placed into statutory management.

This situation will continue to upset people and cause distress until it is sorted out.

As I noted recently:

Much of the furore over Hubbard, is I suspect due to the fact that he is perceived as a good person, whereas many other finance company heads are not perceived in that light. It is possible, and I have no knowledge one way or the other, that Hubbard’s ways of conducting business may have exposed him, albeit with no intent as many might undertand, whereas others despite public perceptions to the contrary will have taken steps to ensure they are legally protected.

It would appear, see Rebeccas Macfie’s latest article on Hubbard in the July 3 Listener, not online unfortunately, that part of the issue with Hubbard might be that he still believes in trust and one’s word being one’s bond. Consequently, as evinced by the support for him, he has he believes acted accordingly. Unfortunately, for Hubbard times have changed and he may be the victim of such change.

I express no opinion one way or the other. However, for their sake, I hope that the trust of Hubbard’s supporters has not been misplaced materially. Yet at the same time we need to have appropriate enforcement of legislation. That means as well that the authorities need to examine as well just what went on in other finance companies, especially if Hubbard is to be faulted for related party transactions and or faulty disclosure.

in some aspects I may have been unexpectedly prescient. I hope that at the end of the day the issue is one of outmoded business process and paperwork deficiencies and nothing else.

There is another aspect to all this though and one which I will return to in due course. That is the issue of supervision and regulation and just how far do you go in protecting investors from themselves.


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