Published 16 July 2010
3 years after receivers were called into Nelson financier LDC Finance Ltd, 2 local business partners who tried to save it with a $4 million equity injection, Andrew Harding & Murray Scholfield, have given the Securities Commission an undertaking never to manage a company or offer securities again.
One of Mr Harding & Mr Scholfield’s partnerships, Finance & Investments (F&I), was closely involved in LDC transactions and also went into receivership in September 2007, exiting in 2008 after paying $8.4 million (including interest) to LDC Finance.
The dealings of Nelson accountancy firm Carran Miller Ltd and of a group of companies’ associated with it, including LDC companies – financing, prospectuses, fund transfers, receiverships – were investigated by Dermot Nottingham, who made numerous allegations about various accountants & directors in hundreds of pages of reports for investor Peter Mytton.
Securities Commission general counsel Liam Mason said today the commission had accepted enforceable undertakings from Mr Harding & Mr Scholfield, who offered securities to the public through F&I without an investment statement or registered prospectus.
Under the terms of the undertaking, Mr Harding & Mr Scholfield agreed not to take part in the management of any company at any time in the future, and not to offer or promote an offer of securities at any time in the future.
Mr Mason said the F&I partnership was established in 1973 and operated as an entity which provided vehicle, commercial & property finance to approved borrowers, taking deposits from the general public to fund its lending.
The receivers of LDC Finance, Malcolm Hollis & John Fisk (PWC), said in their latest report, in May, they’d repaid $9.1 million to investors and held the $8.4 million that came from F&I, plus interest, but were awaiting the outcome of litigation brought by F&I before it could be paid out. The receivers said the estimated return to unsecured creditors remained at 60-70c:$1 but depended on the outcome of the litigation. Secured investors are still owed $3.7 million plus interest.
The hold on the $8.4 million is because Mr Harding & Mr Scholfield are seeking its return so they can pay their own partnership creditors, including people who had money on deposit. The admission by the 2 men that they were operating in breach of the Securities Act has 2 sides to it – the upside for them that, although they will be unable to run another business, they also haven’t incurred any other penalty; but the potential downside for LDC creditors, brought in a new cause in the litigation by the informal trustees, that LDC knew, or should have known, of this breach.
The extension of that argument is that Mr Harding & Mr Scholfield effectively held funds in trust on behalf of their depositors and didn’t own those funds in their own names, so the funds belonged to those depositors, not to the 2 men, their partnership or LDC. In response, the receivers said LDC would argue F&I provided warranties that it complied with all relevant legislation.
The case has yet to go to trial. Meanwhile, the receivers said, money available to unsecured creditors was likely to be diluted because the interest rate being paid on the money they held was lower than the rate owed to secured creditors. The receivers said if they were successful at trial they would counter-claim against Mr Harding, Mr Scholfield & their trustees for the interest differential.
Mr Harding & Mr Scholfield are still directors of Cedar Holdings Ltd & Trafalgar Project Ltd. However, both companies are in the process of being wound up.
Earlier story, 5 September 2007: Receivers move into Nelson financier LDC, troubled all year
Want to comment? Go to the forum.
Attribution: Commission release, company documents, story written by Bob Dey for the Bob Dey Property Report.