Crown secures position in South Canterbury receivership and moves to repay all depositors of defaulting guaranteed companies

The Crown is facilitating repayment of all of South Canterbury Finance’s prior-ranking debts along with all debt-security holders in order to put itself first in line to be repaid by the company’s receivers, behind those protected by statute.

"The Crown will effectively become the first-ranked creditor in this receivership, behind those protected by statute, which means that we can ensure an orderly and well-managed receivership.  Taxpayers will get the maximum value the receiver can recover from South Canterbury Finance," said Acting Secretary to the Treasury Gabriel Makhlouf.

"This is the cleanest, quickest way to achieve an orderly and well-managed receivership that minimises the cost to taxpayers and minimises the impact on South Canterbury Finance suppliers and the customers it has lent money to," said Mr Makhlouf.

"Without becoming the first-ranked creditor, there was a significant risk that the Crown would not recover as much for taxpayers as it could because of the scale and complexity of the South Canterbury Finance receivership.  By creating the conditions for an orderly and well-managed receivership, we remove pressure from the receiver and protect taxpayers’ interests," said Mr Makhlouf.

The Government has also decided today that it will repay all depositors of guaranteed companies that default, including those that have already defaulted, regardless of any previous eligibility criteria that were in place for the Retail Deposit Guarantee Scheme.  The scale and complexity involved with repaying South Canterbury Finance depositors alters the costs involved in running the guarantee scheme.  Repaying all depositors of all guaranteed companies that default will save taxpayers from having to pay ongoing interest that otherwise would have accrued as thousands of claims were assessed, processed and paid.

"Criteria relating to citizenship and tax residency will no longer apply and depositors will not be assessed using those criteria. The criteria for being repaid is that you are on the register of debt securities at the date of default," Mr Makhlouf said.

Debt securities eligible for repayment include: call deposits, term deposits, non-guaranteed deposits, debentures, and bonds.  Equity securities such as ordinary shares and preference shares remain ineligible for repayment under the Crown guarantee.  The Government’s decision to repay all depositors of Crown guaranteed financial institutions that have defaulted means repayments will be made to some depositors who may not have previously been eligible for repayment.

The decision applies for defaults by approved institution from the start of the current Retail Deposit Guarantee Scheme started through until it ends on 12 October 2010. The following eight Crown guaranteed institutions have defaulted: South Canterbury Finance, Allied Nationwide Finance, Mutual Finance, Viaduct Capital, Vision Securities, Strata Finance, and Mascot Finance.  The Treasury will publish details in due course about the process for repaying previously ineligible depositors.

Eligibility criteria that include citizenship and tax residency will continue to apply in the event of a default after 12 October 2010 by entities approved for the extension to the Guarantee scheme. The extension to the Retail Deposit Guarantee Scheme runs from 12 October 2010 to 31 December 2011.