Allied Finance – Some Thoughts

Today the papers report yet another write down at Allied Farmers of the ‘assets’ taken over from Hanover.

According to the NZ Herald:

The assets were valued at almost $400 million at the time of acquisition and the Allied shares received by the finance company investors were ostensibly worth about the same amount.

Yet today they are seen as worth only some NZ$94 million, 25% of the December value.

At the same time at Allied Nationwide Finance, a subsidiary of Allied Farmers, Standard & Poor’s have cut their credit rating to CC. Not exactly a resounding vote of confidence. Apparently the finance company may be in breach of its trust deed, although Allied Famers disputes this.

  • Just what is happening at this company?
  • What sort of due diligence was done on the assets acquired from Hanover?

As Fran O’Sullivan commented in her article yesterday looking at aspects of this trainwreck:-

Has the cabinet asked why the market watchdogs have not recommended they put Allied Farmers into statutory management?

It is increasingly clear that the former Hanover investors who bought into last year’s “rescue deal” are about to lose the last remaining threads in their shirts. In any sensible environment the regulators would have blown the whistle by now.

  • So where are the regulators in all this?
  • Why do we seem to have such an inadequate regulatory regime?
  • Or, is the case that regulators will not act?

As Brian Gaynor noted in his recent NZ Herald column:-

all the parties in the corporate reporting process are well remunerated but none of them accept responsibility, the buck is passed around and around and around.

This lack of responsibility has been a major problem with the finance company sector

  • Yet for some reason people still seem to accept this.Why?
  • What on earth has happened to the concepts of governance?
  • Is it not time for a comprehensive enquiry into the whole finance company nightmare?
  • Can we have any confidence that the new market regulator being established by Simon Power will be anymore effective than the current regimes?

3 responses to “Allied Finance – Some Thoughts

  1. Why accept that there is not a problem with the law as a result of a case like this? If investors and their advisers read the offer document they would see that the cents in the dollar they were being quoted was the value of Hanover’s liability that they had not been paid and that they were not releasing, and not the value of the asset being exchanged or the Allied Farmers shares being issued.

    Our securities laws are principally disclosure based, and in this case the investors were disclosed the terms of the deal and accepted it. Disclosure based securities laws do not stop people from making bad decisions in every case. If you want to move away from freedom of contract and disclosure, then you end up introducing someone else to protect people from themselves. Do you think the protectors, who don’t have their own funds at risk will be more effective than than investors who do?

    The terms of the debentures issued by Hanover included provisions for investors to vote on proposals such as the one they did vote on. The trustee needs to follow the trust deed.

    Of course there are plenty of things to complain about in the Allied/Hanover saga. Poor governance does not imply any failure of the law, as governance of private entities is in the hands of their directors, not the law. If a receiver had been appointed I’m sure there would be no less complaints about the poor pay outs for investors, and probably people would be complaining that our law and securities markets don’t have the capacity to arrange restructurings that would enable the assets to provide better returns. Clearly many companies in difficulties managed to restructure using the flexibility in the trust deeds and securities laws to do deals that many investors now regret. You can’t have your cake and eat it too.

  2. David

    Many thanks for your comments, they are comprehensive and interesting. I am going to have to think about them carefully before I respond.


  3. Fantastic article! complementary to other, Also you can found here

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