Good.
South Canterbury Finance Limited announced today that it has been unable to complete a recapitalisation and restructure.
As a result, the Company would have been unable to certify to Trustees Executors Limited, in accordance with the terms of its debenture trust deed with Trustees Executors Limited, that it was compliant with various financial covenants under the debenture trust deed for the financial year ended 30 June 2010.
Accordingly, South Canterbury Finance Limited has requested Trustees Executors Limited to appoint a receiver in respect of the whole of its undertaking and assets, and Trustees Executors Limited has done so.
A further announcement will be made by the Company in due course.
Now people will start to realise a few home truths. But let me outline some of them for you.
Solvency is all about liquidity. It all works fine until one part of the system freezes or becomes solid. That just happened. There will be people who will think that everything is fine because SCF was part of the Government’s Retail Deposit Guarantee Scheme. Some of those people are repeaters and should know better. Once one part of the system freezes then so too does the rest slowly.
If people who invested in SCF want their money back it will take time and time is never the friend of people who borrowed short and lent long. Other bankers will now be looking at exposure to their customers and it matters not a jot to them that there is allegedly some money sitting in SCF and allegedly guaranteed.
If SCF lied about their position going into the Retail Deposit Guarantee Scheme, then rest assured those deposits are not covered at all. It will take time, a considerable amount of time to ascertain that position, and for all that time the money in SCF ain’t going anywhere except into the receivers pockets. It certainly won’t be going into the pockets of “investors” who think they are covered by a guarantee. Now that some portions of the liquidity is frozen others will now similarly freeze and farms will start to tip over. This is neither good nor bad, but it is good in the sense that highly leveraged owners will be cleaned out, farm prices will drop making entry of new, better financed farmers more likely.
As far as primary lenders go, usually when they lend they place a “priority” on their security, usually, if they are any good at their job this is the value of the security plus a cushion of 30%. Now what this means is that the first ranked secured creditor gets “dibs on any monies, up to and including their “priority”. Second and third in line get the rest. Now if is the case as is likely in the SCF situation where exposure exceeds value then the second and third placed “secured” creditors will get jack.
And that is irrespective of any so-called guarantee. Banks couldn’t care about that one bit, what they want is their loan money back and in short order, otherwise they will realise the assets….in realising the assets they actually take ownership of the guaranteed funds, and they can afford to wait. The farmer will get squeezed out.
This is actually good. The people who took the risk get most of their money back, the fools get their money taken off them and the farms and cows keep on producing the same as they always have, just the ownership changes hand. I’m glad the government didn’t panic.
Now all I wait for is some poor schmuck to front TV crying about how he lost everything because he “invested” in Blue Chip, Hanover and then SCF, with a little dabble in Strategic Finance, making the trifecta of stupidity. He will probably add to that by calling on Alan Hawkins to come riding in to save SCF.