Cunliffe David: Ministerial Statements — South Canterbury Finance—Receivership and Retail Deposit Guarantee Scheme 
Cunliffe David: Ministerial Statements — South Canterbury Finance—Receivership and Retail Deposit Guarantee Scheme 
[Volume:666;Page:13754] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 The Labour Opposition rises to address the important issue of the receivership of South Canterbury Finance and the additional liability that the public of New Zealand now has to the tune initially of $1.75 billion. Last Tuesday 31 August South Canterbury Finance was placed in receivership triggering the provisions of the Crown Retail Deposit Guarantee Scheme under which South Canterbury Finance’s deposit holders are to be paid $1.6 billion. In addition $175 million is being loaned to the receiver which will allow the Government to repay all of South Canterbury Finance’s prior ranking debts and become the first-ranking creditor. Once South Canterbury Finance’s assets are sold off the Government says it expects to make a net loss of about $600 million which the Minister of Finance argued in the House just previously could be reduced to $300 million to $400 million net of the interest received under the scheme. 
This is the largest bail-out in New Zealand corporate history. The events leading up to the receivership raise some serious questions. The public who are now footing the bill are entitled to know what went wrong when and why it went wrong and who was involved. Kiwis deserve to have clarity and transparency about how the Government and its regulators handled the bail-out and about whether the cost to the taxpayer was in fact minimised. We are asking these questions so that we can learn the lessons of South Canterbury Finance and ensure that something like this does not happen again. 
A wide range of detailed questions need to be addressed. Firstly should South Canterbury Finance have been included in the extended guarantee scheme? Did South Canterbury Finance breach its deed of guarantee? On what date did KordaMentha start to advise the Government on South Canterbury Finance? There have been reports that this happened in mid-2009. It was clear that South Canterbury Finance had substantial difficulties and that some at that point thought it was destined to fail. So what advice did the Government then get from KordaMentha? Did KordaMentha reach the same conclusions as Ernst and Young who said there were fundamental uncertainties about South Canterbury Finance’s financial position? 
Was South Canterbury Finance in breach of the Reserve Bank’s prudential requirements for inclusion in the guarantee scheme when it was accepted for the extended scheme on April Fool’s Day? Given the state of its balance sheet it must have been. Its half-yearly report released in April 2010 showed there had been a huge loss. Why did the Government then act as it did? Had Treasury seen South Canterbury Finance’s latest audit accounts when it announced that the finance company would be included in the extended guarantee? Was South Canterbury Finance in breach of the deed of guarantee when it was included in the extended scheme? South Canterbury Finance’s business practices suggest that it may not have been meeting the standards of prudence required by the deed. What for example was the level of related party transactions at that time and how did that relate to the criteria set out in the deed? 
Could the Government have tightened the terms of the deed of guarantee under the extended scheme? Could the taxpayers’ liability therefore have been limited in that way? The public of New Zealand will want to know whether the Government did indeed minimise the cost to the taxpayer. How many deposits did South Canterbury Finance attract after its inclusion in the extended guarantee scheme? South Canterbury Finance released— 
Rt Hon John Key 
: These are all very good questions. Shame you didn’t ask them when you did it. 
Hon DAVID CUNLIFFE 
: I raise a point of order Mr Speaker. The Opposition has done the Prime Minister and the Minister of Finance the courtesy on this serious matter of listening to their remarks without interruption and we ask that that courtesy be reciprocated. 
Mr SPEAKER 
: That is not an unreasonable request as the Opposition did accord the Minister of Finance the courtesy of listening to him in silence. I ask the House to try to avoid interjections please. 
Hon DAVID CUNLIFFE 
: How many deposits did South Canterbury Finance attract after its inclusion in the extended guarantee scheme? It released a prospectus in early April that sought to raise $1.2 billion in registered debentures. The Government’s decision to extend the guarantee gave investors the confidence to make new deposits with South Canterbury Finance even though the company was already in a bad state. 
There have been reports in the media about a potential commercial deal that would have greatly reduced the Crown’s and taxpayer’s liability. Apparently negotiations ended only at 4.30 a.m. on the night before the receivership was announced. What deals were on the table? Was someone interested in buying a share of equity in South Canterbury Finance possibly preventing the need for a bail-out? We have heard that reputable parties were willing to invest hundreds of millions of dollars of their own equity. This would have greatly reduced the taxpayer’s liability. Having made the decision to include South Canterbury Finance in the extended guarantee why did the Government not give Sandy Maier the chief executive every chance to recapitalise the company and why did those negotiations fail at the last moment? What was the sequencing of Cabinet’s consideration of the recapitalisation proposal relative to the timing of those negotiations? What other options did the Government consider before South Canterbury Finance was put into receivership? It seems that the Government’s moves were pre-planned given the speed of their implementation. Did the Government really give recapitalisation every chance to succeed? 
The Government has said that the minimum cost to the taxpayer could be around $600 million assuming that the Government can realise the full value of all of South Canterbury Finance’s assets. The Opposition asks whether that cost could in the end be more than that. It is clear that assets held in receivership typically erode in value. Faced with the choice between ceasing business as usual as a going concern or being sold to circling speculators at fire-sale prices what scenarios has the Government planned for the value loss of the assets currently held by the receiver and how will that loss be minimised? 
The Opposition and the public will be interested in the process that the Government went through when it put the House under urgency without a select committee process to extend the guarantee scheme. Labour voted for that and it was passed in September of last year. However at the time we made the point that the legislation should have gone to a select committee even if it was only for a compressed period of time. I believe that history has shown that to be a good and proper instinct. 
Did putting Allan Hubbard into statutory management exacerbate South Canterbury Finance’s troubles? It is clear that there are matters currently under investigation by the Serious Fraud Office that this House cannot have visibility into. But none the less on 20 June Minister Power announced that on the advice of the Securities Commission he was placing the Hubbards Aorangi Securities and seven charitable trusts under statutory management. Some matters were referred to the Serious Fraud Office. Although South Canterbury Finance was not part of the order it must have been affected by the loss of confidence in its principal Allan Hubbard. Because of the statutory management and the ongoing Serious Fraud Office investigations the public has little information about what led to the Government’s decision. No doubt more will be known when these matters are concluded. But after the announcement my colleague the Hon Lianne Dalziel wrote to Minister Power expressing her concern that placing Allan Hubbard under statutory management at a time when South Canterbury Finance was trying to raise funds was difficult to understand. Did the Government factor in the situation facing South Canterbury Finance when making the statutory management order? Did the Government consider the effect of the decision on South Canterbury Finance and the effect on the retail deposit scheme? 
Taxpayers will wish to assess who were the eventual winners and losers in this debacle. The Government has loaned $1.75 billion to South Canterbury Finance’s receivers and depositors which is more than the annual Budget allocation for the New Zealand Police and even after the assets are sold the Government could be $600 million in the red. The companies who borrowed off South Canterbury Finance will now be struggling as receivers cut up their credit cards and shut off their credit lines. However some companies with senior registered debt stand to make a very handsome return from their investments in this process. The public will want to understand more about how those circumstances arose. 
Were there any conflicts of interest? Some serious questions need to be asked about the transparency and integrity of the Government’s processes. What assurances did the Government seek that all private parties were free of conflicts of interests? What conflicts of interest were declared to the Government? What steps if any were taken to mitigate any conflicts of interests? These are issues that we will examine in more detail as the facts emerge. 
To sum up the issues raised so far the Government stated that its objectives for South Canterbury Finance included minimising the cost to taxpayers yet it decided to include it within the extended guarantee scheme despite evidence that South Canterbury Finance might already have been in breach of the terms of that scheme. Having made that decision the Government moved the company into receivership without clearly allowing the recapitalisation process to finish or other options such as statutory management to be explored. Serious questions remain to be answered.