Boscawen John: Adjournment — Sittings of the House 
Boscawen John: Adjournment — Sittings of the House 
[Volume:659;Page:8636] 
JOHN BOSCAWEN (ACT) 
: 
 I also would like to acknowledge all those who have made a contribution to the successful running of this House over the past 12 months. I wish them all the best for the festive season. 
I do not have the humour of Darren Hughes but I want to use this opportunity to discuss a very serious matter. Sadly however many thousands of New Zealanders will not enjoy the Christmas they might otherwise have had—those who have lost heavily in finance company collapses. In particular I think of those mainly elderly investors in Strategic Finance who in the last 2 days have received letters advising them that they cannot rely on the undertakings that were made in the moratorium document and in particular they cannot rely on receiving a payment on 7 January. 
What concerns me however is that I believe that the accounts that were presented to the moratorium showed a misleading position and did not properly disclose the true quality of the company’s securities. The 2008 accounts clearly showed securities as being either first or second mortgages. Those are the accounts on which investors based their decision to vote in the moratorium. However the most recent accounts of Strategic Finance to 30 June 2009 introduced a third category of security. In addition to first and second mortgages we have a thing called a second mortgage with subordinated position. That is defined to be a second mortgage where the company participates with other lenders/investors but the company’s position is subordinated to those lenders/investors. 
The effect of this is real and substantial. Although the mortgage on the face of it may be a second mortgage the substance is that the transaction is now a third-ranking security. And it is a substance that matters. I do not believe that the investors who voted in that moratorium last December knew that a significant number of strategic assets were third-ranking securities. To give members an example of such a transaction I understand that in respect of the Denarau Fiji project on which Strategic Finance has lent approximately $30 million worth of priority investors in the second mortgage will need to be paid before the debenture-holders. 
In disclosing this new third category of securities the accounts go back and restate what the figures actually were at June 2008. The accounts show for the first time the true picture as it was at 30 June 2008 and they show that some $68 million of mortgages that had previously been classified as second mortgages were indeed this third-ranking security. 
I believe that those mainly elderly investors who voted at the moratorium would not have been aware that there was some $68 million in third-ranking securities. The directors have already written off $28 million of this figure and I would not be surprised if the remaining balance the full $68 million was written off. What I see as just as bad is that no attempt has been made by Strategic Finance to comment on this reclassification of its accounts. There has been no attempt to comment on and inform investors that in actual fact $68 million of those securities at 30 June 2008 were indeed third-ranking rather than second-ranking as they were purported to be. 
I rang the auditors KPMG this morning and inquired as to why they did not require disclosure of this information at 30 June 2008. I am yet to hear back from them. I would be interested to know also why they did not comment on it in their auditors’ report. 
I accept that the directors are fully entitled to enter into securities that are effectively third-ranking; I only say that that information should have been properly disclosed to those investors before they voted on it in the moratorium. I believe that it was misinformation and I believe that the time has now come for the Government to appoint a statutory manager. The Government needs to take control of this company so that investors can have confidence in the information they are given about these securities. 
With that I wish all members the best of the festive season. I am sorry that I have taken this opportunity to raise such a serious but I think very important matter. Thank you.