Victorian fund frozen on bad debt discovery

Retired crop duster Ben Buckley was surprised when he walked into a branch of Gippsland Secured Investments on Thursday and was told he could not lodge money into his account.

Mr Buckley, 77, who lives in one of Victoria's most remote towns, Benambra, has been an account holder with the non-bank lender for decades. Only on Monday, after a friend telephoned to say the institution was in strife, did Mr Buckley realise his savings were at risk.

Gippsland froze its $150 million in funds on Friday, putting the money of 3500 mostly local investors in doubt.

"My mate loves to give me bad news so at first I didn't take him seriously," Mr Buckley said. "Your first thought is that it's awful and you've done your dough but now I'm curiously hopeful.

"I'm not going to starve because we've got welfare back-ups but there will other people much worse off, particularly pensioners."

Gippsland is the latest regional lender to come under strain after last year's collapse of Banksia Securities, another debenture house that threatened $660 million worth of money belonging to about 15,000 investors, many of them in regional Victoria.

As a non-bank lender, Gippsland offers investors high interest on debentures and then lends these funds as mortgages or commercial property loans.

On Friday, Gippsland told investors it had to place a voluntary suspension on fund withdrawals after reviewing its lending book, when it discovered a higher than expected amount of bad debt.

Given that Gippsland does not hold a banking licence, its funds are not backed by the federal government's bank deposit guarantee.

"Deposit and withdrawals have been temporarily suspended," Gippsland spokesman Steve Murphy. "We recognise and acknowledge there is a degree of concern and a level of anxiety, and we apologise.

"We are trying to work through this process of review as quickly as possible so the matter can be resolved and people will know where they stand."

He said more information would be made public by next week.

Gippsland said it was not accepting new investments. The finance house has six branches in eastern Victoria: in Sale, Lakes Entrance, Orbost, Warragul, Maffra and its head office in Bairnsdale.

East Gippsland mayor Richard Ellis said the lender had funded many local development projects and had a solid reputation, but he feared the area would suffer if it collapsed.

Mr Buckley, who is an East Gippsland councillor, said he was staying positive.

"There's no use making a run on the place. Lots of people might want to, but I'm one to let it sort itself out."