Receivers probe related-party loans at failed lender Gippsland
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 is comprised of 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 and Young said he could not say why loans had been misclassified.
"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.
"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. Part of the investigation would be an assessment of whether directors had fulfilled their statutory duties.
The trustee and receivers say they are confident of returning between 80¢ and 90¢ in the dollar to investors if they sell the portfolio.
Frequently Asked Questions about this Article…
Gippsland Secured Investments (GSI) collapsed last month, putting about $143 million in local savings at risk, according to the interim report to noteholders.
The interim report found almost two‑thirds (63%) of GSI's loan book was made up of property development loans, which is materially higher than the 40% exposure the company stated in its prospectus.
Receivers and the trustee are examining the loan book—including discounted loans to directors—and focusing on related‑party transactions to understand misclassifications, recover assets, and decide whether to sell the loan portfolio to return funds to investors.
The loan to Riviera Properties is significant because of its size and its related‑party nature: Riviera publicly acknowledged it was a related party of GSI due to common directors, and one of those directors, John Stephenson, had also been on GSI's board.
According to receiver Adam Nikitins from Ernst & Young, there is no evidence that directors pulled money out of GSI before the company froze its accounts; part of the ongoing investigation will assess whether directors met their statutory duties.
The trustee and receivers say they are confident that, if they sell the loan portfolio, they could return between 80 cents and 90 cents in the dollar to investors.
Receiver Adam Nikitins said the prospectus and the receivers' findings differ—he could not say why loans were misclassified or whether that was done knowingly or by mistake, and that is part of the current probe.
Yes. The company's directors and auditors are being scrutinised, with related‑party transactions under the microscope as receivers and the trustee investigate the causes of the collapse and any potential breaches of duty.
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