Cunliffe David: General Debate 
Cunliffe David: General Debate 
[Volume:666;Page:13778] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I move That the House take note of miscellaneous business. The South Canterbury Finance collapse under the Crown Retail Deposit Guarantee Scheme is the largest corporate bail-out in New Zealand history. It raises serious questions that the Government must answer today. The public is entitled to know what went wrong why and through whom. New Zealanders are footing the bill and they deserve clarity and transparency about how the Government and its regulators handled this important matter. 
Why did the Government roll over South Canterbury Finance in the guarantee scheme when it must have known before that time that South Canterbury Finance was in significant distress? Having decided to roll it over why did the Government not tighten the terms of the conditions to prevent the scheme from mushrooming and the public’s liability being extended further? Why did the Minister of Commerce at a similar time then agree to place the Hubbards and Aorangi Securities into statutory management notwithstanding the negative impact that that must ultimately have on South Canterbury Finance? Why when distress deepened did the Government choose receivership rather than statutory management or recapitalisation of South Canterbury Finance to allow it to trade its way through its difficulties without a fire sale or value destruction under receivership? Why were senior debt holders like Torchlight Fund thus handed a gold-plated deal—discounted debt purchased paid back at full sticker price plus fees plus interest—something Fran O’Sullivan has called “usurious”? Why were some New Zealanders and some foreigners given a gold-plated payback and other New Zealanders equity holders were wiped out? Why was no moral hazard prevented in this case? 
Let us examine some of the initial responses of the Minister of Finance to the questions New Zealanders are asking. He said it would be unacceptable for the Crown to favour some investors and not others but as we have just noted that is exactly what the Crown did by default thanks to its perhaps slavish adherence to the ideology of the market that receivership was the only way out. It favoured senior debt holders and wiped out equity. That is exactly what has happened. Some people have made a handsome profit at the expense of taxpayers and some others have been bankrupted. That may be why Fran O’Sullivan said in today’s  
New Zealand Herald  
that the Government has effectively been “gamed”: gamed in the name of blind ideology. Or was it to avoid an untidy result in an election year? 
Mr English is guilty of manipulating the numbers around the financial liability to the taxpayer. In earlier statements the Government said $600 million. But it has chosen for the purposes of debate again today to reduce it to $300 million deducting from it the interest paid across the whole scheme—mainly from other people like the banks—which is completely irrelevant to this deal because it had nothing to do with South Canterbury Finance at all. That is what Fran O’Sullivan has called “specious” and what others would call “slippery”. 
The third issue that has been raised by Mr English today is that this all occurred under the original 2008 scheme. That is a complete red herring because we all know South Canterbury Finance would have failed before 1 April 2010 had the decision not been taken and announced by the Government to extend it under the scheme. The fact that South Canterbury Finance was covered for the future meant that it continued to take deposits and apparently to proceed with the recapitalisation plan. Well that brings us to the next crucial issue: why was the recapitalisation process kneecapped at the last moment? The chief executive has said publicly that they were negotiating until 4 o’clock in the morning. What was on the table? New Zealanders deserve to know because they are paying the bill. What was the term of that deal? Is it true that hundreds of millions of dollars of external equity were available that would have reduced the taxpayers’ liability—that South Canterbury Finance could have traded on under either statutory management or a new deal without the value loss of receivership? 
Finally were there any conflicts of interest involved in this process by Ministers officials or other players in this saga? Were they declared? On what dates? Under what terms? There is much much more to come.