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South Canterbury Finance brochures - Source: ONE News -
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The Green party is backing calls for an investigation into management of the deposit guarantee scheme, saying the Government hasn't done enough to protect the taxpayer.
South Canterbury Finance (SCF) was in the scheme when it was placed into receivership last August which enabled 35,000 depositors to be paid out $1.6 billion.
The Serious Fraud Office (SFO) yesterday laid 21 charges involving $1.7 billion against five people involved in the failed company.
Labour says SCF should not have been readmitted into the guarantee scheme and has demanded an investigation into ''muddled management.''
Greens co-leader Russel Norman says the Government's management of the liability relating to SCF ''is now highly questionable. ''
"It appears fraud may have occurred while South Canterbury Finance was covered by the Government's retail deposit guarantee scheme. That indicates a complete lack of Government oversight," Norman said.
"While there were good reasons to introduce the guarantee scheme, it was critical the scheme was managed in a way that minimised taxpayer liability&
"The public needs to know what Treasury and the Government were doing to stop alleged fraud happening while the taxpayer was underwriting SCF. It seems whatever they were doing wasn't enough."
In October an Auditor General's report on Treasury's management of the Crown Retail Deposit Guarantee Scheme slammed the Treasury and the Government for not managing the size of the Crown's potential liability.
Deposits with SCF grew by 25% after the guarantee was put in place and Treasury did not attempt to moderate this behaviour, the report concluded.
"The Government and Treasury need to take responsibility for their actions. There is mounting evidence they made poor quality decisions that benefited those who invested in SCF over the taxpayer," Norman said.
He said an immediate inquiry is necessary ''to clear things up'' and determine if taxpayer cash was wasted.
''Any inquiry should also cover the use of consultants by Treasury and their role, if any, in this affair,'' he added.
'Muddled management'
Labour's finance spokesman David Cunliffe said this morning although SCF should have been initially admitted into the scheme, there had been "muddled management" of the company by the Government.
"They knew by 2009 that South Canterbury Finance was in deep, deep financial trouble but rather than put it into statutory management then, they encouraged it, allowed it to continue to trade, took on more debt, issued a new perspective."
In April 2010 the Government had allowed the company to be
readmitted into the scheme.
"They should have known by then it was incredibly dodgy."
Shortly before the company was placed into receivership in August 2012, the Government rejected a recapitalisation plan by Ngai Tahu, the New Zealand Superannuation Fund and Permanent Investments Limited, Cunliffe said.
"That that would have seen private investors take on much of the downside risk (but) the Government walked away."
The deal would have limited the Crown's liability to around $500 million.
"Instead the taxpayer has lost $1.2 billion."
Cunliffe said it was ironic the charges had been laid, and provided more information about the failing of the company, 10 days after the election.
It showed the Government should have placed South Canterbury Finance into statutory management, as it did its founded Allan Hubbard, in about June 2009, he said.
"It may have been bordering on insolvency as early as 2009 and given that risk, the Government should have applied greater rigor to its investigation and decisions."
The charges also showed Treasury, which was criticised this year by the Auditor-General for failing to protect taxpayers from liabilities inherent in the scheme, had not been as thorough as the SFO, Cunliffe said.
"It looks like Treasury had just not investigated anything like the same level of detail as the SFO."
The guarantee scheme expires on December 31.
