Britannia Management Ltd directors Craig Myles, of Dunedin, and Roger Bridge, of Christchurch, who manage the Victoria fund, wrote in an investors' update: "We have little control over events from this point forward." At June 30, Messrs Myles and Bridge said the debt to Heartland stood at $8.87 million.
"However, this amount increases on a daily basis as Heartland continues to charge interest [now at penalty rates], as well as their own costs to the sum of the loan," the directors said.
About 150 mainly Dunedin-based investors have lost all their capital in the Victoria fund, estimated at $5 million to more than $8 million, depending on valuation timeframes.
The Victoria fund foundered when manager Britannia Management Ltd switched its investment model from commercial property owning and leasing to developing a light industrial subdivision in Richmond near Nelson.
The Otago Daily Times anonymously received a four-page investor update yesterday, including cover letters from Mr Myles and Mr Bridge, and a financial adviser with NZ Funds Private Wealth Ltd.
The cover letters were dated respectively July 31 and August 1 and are only the second update issued since investors were told of the fund's demise on May 7.
Heartland inherited the loan when it merged with other entities on a Richmond subdivision near Nelson purchased by Victoria for $5.25 million in 2005.
But in April, Heartland declined to roll-over the seven-year-old loan, estimated to be $7.55 million, and demanded full repayment.
Heartland can as of right force a mortgagee sale on the remaining eight of the original 23 sections.
The directors said the completed sub-division had a value of $13 million.
However, it had faced regulatory and construction overruns, "significant" legal fees, interest charges, higher debt levels than anticipated, and loss in land values. It also remains in dispute over the sale of two sections.
The additional costs and land value loss was "well in excess of $1.3 million" at June 30, the directors said.
They "expected" the Richmond subdivision to be taken over by Heartland, which it would sell to recoup its loan.
"[However] our view is that it is unlikely that Heartland will achieve the full value of its loan, let alone realise the full value of the land."
NZ Funds Private Wealth Ltd purchased outright Mr Myles' Myles Planning Ltd in November 2011. After Mr Myles stepped aside as a NZ Fund's director in June, it launched an "in-house review" into the Victoria fund's management. Mr Myles said the update was prepared to address "major themes" brought up by investors' questions since the fund failed, and apologised "for the distress this may have caused you".
"We also recognise that, with the passage of time, communications we have previously provided to you and, indeed, the origins of the Fund itself may not be readily available either to memory or to hand," Mr Myles and Mr Bridge wrote.
The Victoria fund was being wound up in 2007, two properties and a storage facility elsewhere where sold, leaving Richmond as its only asset, with the proceeds to finance its development.
The directors decided not to seek further capital to continue development as Heartland would not "compromise" its priority loan claim position, and therefore further investor capital could not have been protected from Heartland's interests.
