A bombshell fell on 25 investors of failed Hurricane House Ltd yesterday, when its liquidators revealed their investments - $4.5 million of unpaid loans to a Canterbury-based finance company - were not secured against any assets.
The sole owner of the Canterbury finance company, which has formally defaulted on repaying the loan, had earlier given a personal guarantee over the $4.5 million loan. However, this week court proceedings were initiated against him by Dunedin-based Insolvency Management Ltd, liquidator Gus Jenkins confirmed after the meeting.
Hurricane House was placed in the hands of liquidators about a month ago by sole owner, Dunedin businessman Paul Nicholson.
Mr Jenkins said the Canterbury finance company owner's lawyers were "working on a proposal for repayment of the [$4.5 million] debt".
There might be an outcome of that case within a fortnight, but it was likely to be up to four months before investors and creditors received an estimate of any payout, Mr Jenkins said.
"For a loan of that size, which is about 50% of Hurricane's loan book, it is not a good situation to be in.
"It was a very high risk loan, a major exposure [for investors], being unsecured against any assets. There is no right to sell properties," Mr Jenkins said.
It was too early in the investigation to comment on whether the Securities Commission would become involved, he said.
Because of the lack of any securities on the $4.5 million, the investors, mainly from Dunedin, became low-priority unsecured creditors in the liquidation process. Hurricane could owe up to $8.5 million to about 50 people, spread across mainly southern investors and trade creditors.
Twenty-two investors and creditors met liquidators yesterday.
Without securities, the liquidators have no legal leverage to force the sale of land, properties or mortgages to recoup the investment money.
The trade creditors were not affected by yesterday's disclosure the loans were unsecured, but they, too, were unsecured creditors and "essentially in the same pot", Mr Jenkins said.
Of the 25 Hurricane investors, more than half are from Dunedin. About half of the 25 trade creditors are from Dunedin.
