Agony Aunt: Where has our finance company payout gone?
Dear Janine,
We have just received our final payment from North South Finance who got the wobbles in 2008 and went into receivership in 2010. We got back 72 per cent of our money in dribs and drabs. To add insult to injury, they said they would make the final payment and didn't.
I rang and was told of a "technical error". This outfit called KordaMentha is in charge of paying back the money.
These people seem to strip out a lot of money in fees and now they are not paying up. Can you ask them what is going on as I'm only getting vague answers?
Frustrated Finance Company Investor
ANSWER:
It wasn't hard to find the bloke in charge of this one. It all started off rosy and efficient with a KordaMentha staff member giving a good explanation for the delayed payment.
The lips then froze and I assume he had better things to do than answer a few of my pesky questions.
All I can do is take a few guesses for you and they'll have to live with the accuracy of my mumblings.
Goodness knows why KordaMentha went quiet as they've pulled off a great result for investors. So many people lost the pants off their backsides in finance company meltdowns, yet North South returned almost three-quarters of the money.
Sure, some capital was lost and many years of interest, but for perspective, take a look at the "Deep Freeze List" published by interest.co.nz.
This shows the amount of capital that investors can expect to receive back. A result of 72 per cent looks enormous compared to some of these:
- Bridgecorp: 10 per cent
- Capital and Merchant: 0 to 2 per cent
- Dominion: 10 to 25 per cent
- St Lawrence: 34 per cent
- Hanover: 18 per cent
- Strategic: 12 to 35 per cent
KordaMentha intended to pay investors a final distribution of 7.12 per cent (almost $7.3 million shared between you) on Friday, September 18, 2015.
You were then told there was a technical glitch and the payment could be more than a week late.
A KordaMentha staff member explained: "One of the files required to enable us to pay the direct credit batches corrupted on Friday evening.
"Consequently we could not make the payments to investors. We ran the payment batches again over the weekend. They have to be produced out of the electronic debenture register and reconciled, so we could make the payments Monday morning.
"In all the years we have been paying investor distributions this is the first time we have encountered this issue."
Good answer. But what happened to the interest earned on $7.3m for a couple of days? Maybe it's a national secret. This isn't a material amount of money, probably less than $2000.
The cost of admin in distributing this to investors will be far more than the windfall itself. At a practical level it would be detrimental to try and distribute it.
Good legal contracts foresee the possibility of money earned unintentionally. Since $7.3m was the last payment, the estimated $2000 needs to float off somewhere.
Perhaps there is a clause in the receiver's contract that these amounts are for their benefit. That's perfectly okay if it's detailed. If not, a common solution is a payment to charity as a sign of good faith.
KordaMentha will do whatever is legally correct. They're a well-known receiver with a good reputation. Despite having to guess, I have no personal doubts over them.
Receivers make a fair amount of money out of these situations, but they are not the bad guys here. They're the ambulance at the bottom of the cliff cleaning up the mess and that doesn't come for free.
One of the biggest costs in the North South case seems to be legal fees. An investor update for the last six months of 2014 shows over $600,000 in legal costs with an additional $130,000 in the first half of 2015.
The receivers took legal action against two unnamed parties for payments made to sister company, Dominion Finance. They have signed confidentiality agreements and can't tell you the source of that payment.
I find it really odd getting money from a source you don't know, but the law has allowed the defendants to negotiate a confidential settlement. So be it.
Given the defendants paid $6m, the legal costs look worth it.
There's another $300,000 I asked KordaMentha about, but they didn't respond.
The net cash flow shown in the receivers' 10th report on July 7, 2015 was $7.58m. Yet your payment as shown in the 11th report was $7.28m in September 2015.
Let's assume more legal costs, receiver's remuneration, trustee fees and admin costs. An expensive final few months winding things up, but not unusual. The final accounts will reveal all.
Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.