Receiver probes related-party loans of failed lender
It comes as the lender's directors and auditors are being scrutinised, with related-party transactions under the microscope.
The Victorian non-bank lender collapsed last month putting $143 million in local savings in jeopardy.
The interim report to noteholders reveals almost two-thirds, or 63 per cent, of the company's loan book comprised property development loans - higher than the 40 per cent stated in the company's prospectus.
The trustee and receivers are examining GSI's loan book, including discounted loans given to directors, with a view to selling the portfolio to recover some of the investor funds.
Receiver Adam Nikitins, from Ernst & Young, said he could not say why loans had been wrongly listed. "The prospectus has said one thing, and we have said another thing," he said.
"Whether it was a view that was taken knowingly or mistakenly, I can't answer that."
At the centre of investigations into why the non-bank lender collapsed is a loan to property development group, Riviera Properties, whose director, John Stephenson, was also on the board of GSI.
Mr Nikitins said a focus of the investigation was related-party transactions.
"The loan to Riviera is significant, not only because of its size but because of the related-party nature of it," he said.
"Riviera has publicly stated it is a related party of GSI by virtue of having common directors. That is a matter of fact.
"The director stepped down several months ago, but for the lion's share of the journey there was that common interest."
Mr Nikitins said there was no evidence that directors had pulled any money out of GSI before the company froze its accounts in July.
But part of the investigation would be an assessment of whether directors had fulfilled their statutory duties.
The trustee and receivers say they are confident in returning between 80¢ and 90¢ in the dollar to investors if they successfully sell the loan portfolio.
Frequently Asked Questions about this Article…
Gippsland Secured Investments (GSI), a Victorian non-bank rural lender, collapsed last month and put about $143 million in local savings at risk. The company’s accounts were frozen in July as trustees and receivers moved in to examine the situation.
The interim report to noteholders shows about 63% of GSI’s loan book was in property development loans, while the company’s prospectus stated only 40% exposure. Receivers say that mismatch suggests investors were given misleading information about loan concentration.
The trustee and receivers, including receiver Adam Nikitins from Ernst & Young, are investigating GSI’s loan book. They are reviewing discounted loans to directors, related-party transactions and the overall portfolio with a view to selling loans to recover investor funds.
The loan to Riviera Properties is significant because of its size and its related-party nature: Riviera’s director, John Stephenson, was also on GSI’s board for most of the period in question. That common directorship means the loan is being closely examined for conflicts of interest.
According to receiver Adam Nikitins, there is no evidence that directors pulled money out of GSI before the company froze its accounts in July. However, investigators will assess whether directors met their statutory duties during the lead-up to the collapse.
Related-party loans are loans made to businesses or individuals that have a common interest with the lender, such as shared directors. Investors should care because these loans can present conflicts of interest and concentration risk, which is why GSI’s related-party lending is now under scrutiny.
The trustee and receivers say they are confident that, if they can successfully sell the loan portfolio, they could return between 80 and 90 cents in the dollar to investors. That recovery depends on the outcome of loan sales and the investigations.
The interim report indicates that the receivers and trustee are examining discounted loans given to directors as part of their review of the loan book. These director loans are one of several areas being investigated alongside related-party transactions and loan concentrations.
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