Judge queries indemnity for borrower from SCF

A judge has queried why South Canterbury Finance (SCF) would give a borrower indemnity against any loss, after the borrower was loaned $6.9 million.

The trial of former SCF directors Ed Sullivan and Robert White, and former chief executive Lachie McLeod continued yesterday in the High Court at Timaru before Justice Paul Heath. It will sit again today, starting at 9am, with a final day on Monday.

The last week of the defence’s closing has attracted its largest number of supporters.

In 2006, then chairman Allan Hubbard owned 44 per cent of Wool Services. He had been offered a further 19 per cent but buying it would have triggered takeover regulations.

Sullivan approached his friend and client of 40 years, Ross Lund, to be a director. Lund agreed as long as Sullivan arranged the finance and he (Lund) did not have to personally guarantee the borrowings.

SCF then loaned Woolpak $6.9 million. Lund requested a document outlining his indemnity.

The Crown has argued Lund was a puppet director and Sullivan really controlled Woolpak, making it a related party.

Justice Heath asked defence counsel Pip Hall, QC, why a finance company would give its borrower an indemnity.

‘‘It just does not seem commercial. Why would a borrower determine the terms? I amlooking for a commercial reason to do that, that is not associated with the possibility the shares were being held for someone else,’’ the judge said. ‘‘The fact of indemnity does not bring the Crown home (on the charge) but it is a piece of circumstantial evidence.’’

Hall said: ‘‘Your Honour should not just jump to the conclusion Mr Lund held the shares for Mr Hubbard because of the indemnity.’’

Hall said Lund had given evidence there was no agreement between him and Hubbard. ‘‘Mr Lund was a man of substance and he repeatedly indicated that he owned the shares independently; it was meant to be a short-term arrangement.’’

A loan of $12m to Dairy Holdings chairman Colin Armer was also covered off yesterday. If the loan was to DHL directly it would have taken SCF exposure to more than 35 per cent, a breach of the deed, according to the Crown. So instead, a loan was advanced to Armer personally for $12m.

McLeod faces a charge of breaching the trust deed, and Sullivan faces one of making a false statement in a prospectus by not declaring it as a related party.

Hall argued the loan was most definitely to Armer as he was personally culpable.

Footnote: In yesterday’s SCF story we referred to defence counsel Pip Squire, QC. This should have been Pip Hall, QC.