Capital Merchant Finance and Perpetual Trust case settled

The long-running case between the receivers of failed finance firm Capital+Merchant Finance and trustee Perpetual Trust has been settled for a confidential amount.

The case, originally brought in 2012, was supposed to have its first hearing today in the Auckland High Court today and was expected to be a $94 million claim based on an alleged breach of Perpetual’s duty of care.

Receivers Grant Graham and Brendon Gibson of KordaMentha have issued a brief statement saying details will only be given in their next report.

They have declined to give further comment but say they will contact debenture holders in mid-December about distributions.

Capital+Merchant collapsed nine years ago owing 7500 investors $167 million. Nothing was recovered for debenture holders from the finance company’s assets and the only money for them so far is from an $18.5 million settlement with the firm’s auditor BDO Spicers.

The receivers paid for the case using money provided by litigation funders, understood be Australia-based Litigation Lending Services, with support from New Zealand’s LPF Group.

Receivers’ reports indicate litigation funders have contributed $1.3 million between May 2013 and May this year.

Of the $167 million owed to investors, $90.7 million was in so-called “capital secured” debentures covered by an insurance policy. Under the terms of the trust deed, loans classed as capital secured could not be sold except for cash equal to the principal and interest outstanding.

It is alleged that two finance deals involving financiers Diversified Mortgage Trust and Fortress violated those terms, leading to the loss of insurance recoveries when Capital + Merchant collapsed and that Perpetual should not have approved them.

Capital + Merchant’s legal adviser, Stace Hammond, also settled with receivers for an undisclosed sum, although its payment is held in trust pending the outcome of the Perpetual case.

Perpetual Trust is now part of the Perpetual Guardian group, which is expected to file a prospectus for an NZX float in November 16.

In financial statements filed last week, Perpetual Guardian said the legal action is being handled by its insurer and that any outcome would be adequately covered by its insurance.

“The directors of PTL do not believe that the company owed a duty to CMF as alleged and believe that no payment should be awarded,” they said.