Thursday, April 14, 2011

SCF breached the terms of its guarantee

With Parliament under urgency to pass both the guilt by accusation copyright law and the Canterbury Enabling Act 2.0, today is a good day to dump bad news. And the government has, releasing hundreds of documents related to South Canterbury Finance. The key finding so far? The company violated the terms of its guarantee within the first two months:

The Reserve Bank recommended putting the failed finance company "on notice" after it discovered large transactions carried out in January 2009 had gone unreported.

Its letter to Treasury said the transfer of $89.6 million of loans from South Canterbury to its parent company Southbury in January was in breach of the deposit guarantee scheme contract signed on November 19, 2008.

South Canterbury was required to get permission from Treasury for any transfer of assets in excess of $21.36 million, the Reserve Bank said.

Treasury had not been informed of the transaction.

Another $90 million loan to a related party also came under fire.

Despite the contract making it clear similar transactions above the value of $22.3 million needed consent, there was no independent certification from the Crown, the Reserve Bank said.

So, SCF was guaranteed, then asset-stripped under our noses. And yet the National government repeatedly renewed the guarantee. That decision already looked foolish, now it looks simply insane.