Yesterday, under the cover of CERA, the government released hundreds of documents relating to South Canterbury Finance, it’s use and abuse of the deposit guarantee scheme, and the bailout. They show SCF broke the terms of its guarantee but National turned a blind eye.
The Herald describes the contents of the papers:
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.
“No consent was sought by SCF from the Crown for this transaction to take place, nor was there any independent certification from an expert approved by the Crown to show that the transaction was at arm’s length.”
Guarantee scheme team leader John Park wrote to South Canterbury in the wake of the revelations requesting information on the transactions within two weeks.
He notified the company that the Government could pull out of the guarantee scheme for similar offences.
“The Crown views clause 6.2 as being very important. You will appreciate that breaches of clause 6.2 can result in withdrawal of the Crown Guarantee under clause 6.9.”
So, National guarantees SCF’s deposits. Almost immediately, SCF begins what looks like asset-stripping. The Treasury and Reserve Bank know about this and know it is in breach of the rules of the deposit schem. So does the government. Remember, John Key has said that “The entire time I’ve been Prime Minister I’ve had Treasury in my office week after week, month after month telling me South Canterbury Finance was going bankrupt”. Yet Key and the responsible minsiter, Bill English, fail to act by removing the deposit guarantee.
This has cost the taxpayer hundreds of millions of dollars.
David Cunliffe is right. Someone needs to resign. If not Key, it should be English.
Update: See frogblog’s excellent coverage of this topic.