Elderslie auditors had $67m question

A partner at Trood Pratt & Co, Elderslie's auditor between 2005 and 2007, yesterday faced questioning over the firm's role in checking the value of the loan to Elderslie's parent company, Hotel Nominees.

The related-party loan was one the biggest assets held by Elderslie, chaired by the former Liberal leader John Hewson until shortly before its collapse in July 2008.

About 4000 debenture holders are seeking $140 million from the firm but receivers estimate they will receive 10c in the dollar.

Trood Pratt & Co's partner in charge of audits, Peter Lockyer, yesterday confirmed he had written a note about the loan in September 2007 saying: "Raised our concerns about recoverability."

However, Mr Lockyer said his concerns were satisfied after he spoke with Elderslie's management and referred to a previous valuation of the company.

Receivers from PricewaterhouseCoopers have found this loan, among others, to be "substantially irrecoverable" and they are are continuing investigations into loans signed off by Elderslie's management.

The security over the $67 million loan was Hotel Nominees' ownership of Elderslie  an arrangement previously described in court as "circular".

But Mr Lockyer said he was reassured after reading a 2006 independent valuation of Elderslie by Deloitte, which valued the group at between $120 million and $130 million.

Mr Lockyer said he also also formed his opinion after hearing of potential offers for the group.

He said the managing director of Elderslie, James Garrett, told him in 2007 that ANZ Bank and Babcock & Brown were interested in taking a stake in Elderslie but no prices or conditions were discussed.

The failed investment group Allco Finance had also previously offered to buy Elderslie for $115 million in 2005, Mr Lockyer told the hearing.

The public examination of the auditors  authorised by the Australian Investments and Securities Commission  is to continue in Sydney today.

The corporate watchdog also required Trood Pratt & Co to hand over its audit record for Elderslie as part of an official review into the collapsed group's affairs.