Cunliffe David: Questions for Oral Answer — Questions to Ministers Questions to Members 
Cunliffe David: Questions for Oral Answer — Questions to Ministers Questions to Members 
[Volume:666;Page:13891] 
6. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
 to the  
Minister of Finance 
: What advice if any did Treasury receive from KordaMentha in relation to South Canterbury Finance’s financial condition prior to approving the extension of the Crown Retail Deposit Guarantee Scheme and did this advice question whether such an extension was appropriate? 
Hon BILL ENGLISH (Minister of Finance) 
: 
 KordaMentha was engaged by Treasury in June 2009 to undertake detailed analysis of South Canterbury Finance and it made regular reports to Treasury regarding the state of the company. The fact that Treasury believed there was a chance that South Canterbury Finance could fail was publicly demonstrated in the public accounts for the year ended June 2009 where provision of $831 million was made. That provision was based on an independent assessment of the size of the loss that could occur from the failure of a major company such as South Canterbury Finance. The provision appeared in the first place because there was an assessment that there was a more than even chance that South Canterbury Finance along with other finance companies would fail. I point out to the member that South Canterbury Finance did not fail under the extended Crown guarantee; that has not come into effect yet and will not come into effect until 13 October. South Canterbury Finance failed under the original guarantee established in late 2008. 
Hon David Cunliffe 
: What reports from KordaMentha did Treasury receive of South Canterbury Finance using its acceptance into the guarantee scheme to attract more investment and to increase its loans and when were those reports received? 
Hon BILL ENGLISH 
: I think the member might have received a list of the dates of those reports in the answer to a written question. I cannot tell him whether they focused on those issues. The reports were made to Treasury under the arrangements put in place by the previous Government and supported by this Government whereby Treasury made those decisions. We need to keep in mind that part of the point of the guarantee was to allow the finance companies to raise money because if they did not raise new money they would certainly fail in the end. 
Hon David Cunliffe 
: When a Treasury official said “South Canterbury’s failure was well anticipated …” what was the earliest date that Treasury formed the conclusion that South Canterbury Finance could fail and when and by whom was that first raised with the Minister? 
Hon BILL ENGLISH 
: I could not give the member a particular date but I can tell him that by the time the June 2009 accounts were published the Government had made provision to cover the possibility that South Canterbury Finance would fail. 
Hon Annette King 
: Just South Canterbury? 
Hon BILL ENGLISH 
: Not just South Canterbury Finance but South Canterbury Finance and other companies. There was an $831 million provision made at that stage so Treasury must have come to a view sometime I presume before those accounts were finalised perhaps in March and April 2009. 
Hon David Cunliffe 
: What advice if any did Treasury receive relating to South Canterbury Finance’s potential breach of its deed of guarantee and when and by whom was that first reported to the Minister? 
Hon BILL ENGLISH 
: I cannot recall whether the member asked about a breach of the guarantee or a breach of the company’s own trust deed. As far as I am aware Treasury did not receive any advice at any stage from anyone that South Canterbury Finance had breached the terms of the guarantee. In fact if that advice had been received the guarantee would have been removed as it was in the case of I think one other finance company. 
David Bennett 
: Once South Canterbury Finance had been admitted to the Crown guarantee were there any subsequent actions that the Crown could have taken that would have reduced the cost to taxpayers? 
Hon BILL ENGLISH 
: I think we need to keep in mind that once South Canterbury Finance was admitted to the guarantee the only way that it could have exited the guarantee without a cost to taxpayers was if the company was successfully recapitalised and managed to get back to stability and business as usual. As it turned out that was not possible because of the significant amount of bad quality loans that it had made mostly prior to entering the guarantee. So in effect once South Canterbury Finance was admitted to the scheme in 2008 the die was cast. The one action the Government could take and has taken was to pay all depositors promptly once receivership occurred so as to reduce interest costs. Treasury estimates that that has saved the Crown about $100 million. 
Hon David Cunliffe 
: Did Treasury or any other officials or advisers ever approach the Minister with a proposal to appoint a statutory manager in respect of South Canterbury Finance either prior to the extension in April 2010 or before its being placed into receivership on 31 August 2010? 
Hon BILL ENGLISH 
: First can I correct one impression. The deposit guarantee scheme was not extended in April 2010; what happened was finance companies applied for entry to an extended guarantee that would begin in October 2010. South Canterbury Finance failed under the original guarantee. In respect of statutory management the answer is no. If there had been a reason to go to statutory management that would have been directed to the Minister who has statutory responsibility for getting advice and that is the Minister of Commerce on the advice and recommendation of the Securities Commission—not through Treasury to the Minister of Finance. 
Hon David Cunliffe 
: I raise a point of order Mr Speaker. It consists of two parts. The first part of the point of order is to note that the first part of the Minister’s response was irrelevant to the question asked. I did not make a proposition— 
Mr SPEAKER 
: Order! 
Hon David Cunliffe 
: —in respect of April 2010— 
Mr SPEAKER 
: The member will sit down. To comment on the Minister’s answer is to totally misuse the point of order process. I listened very carefully to the Minister’s answer. Although I accept that in the first part of his answer he was pointing out a matter in respect of the commencement of the extended guarantee scheme he moved on to answer very precisely what the member had asked. The member had asked—if I recollect correctly—whether advice had been received from Treasury about the appointment of a statutory manager. The Minister was absolutely precise; he said that to the best of his knowledge the answer was no. The member’s question was absolutely answered.