Otago Credit Sails investors to get $16m back

Otago investors caught up in the collapsed $91 million Credit Sails investment fund are to get almost $16 million back in coming weeks, from a $60 million settlement fund from the five companies which created Credit Sails.

The 85c-in-the-dollar payout brings to an end almost four years of behind-the-scenes negotiations, litigation threats and an almost two-year investigation by the Commerce Commission.

However, entitlement to payments also includes investors waiving their rights to any future legal action.

The companies which established the fund, and subsequently reached the $60 million Commerce Commission settlement, were Forsyth Barr Ltd of Dunedin, Forsyth Barr Group Ltd, Credit Agricole Corporate and Investment Bank, Credit Sail Ltd and Calyon Hong Kong Ltd.

Credit Sails appeared a low-risk investment offering 8.5% interest income, but it was an extremely complicated investment vehicle, based on sophisticated debt securities, whose demise was prompted by the failure of Lehman Brothers, in the US, and two banks in Iceland.

Following the 2008 collapse, the original $91.5 million investment was later described by the Commerce Commission as ''worthless''. Some southern investors were understood to have lost their capital including hospice, youth, orphan and three religious trusts.

Greg Marshall, of Logic Fund Management in Wanaka, had signed up more than 500 affected parties - representing almost 20% of Credit Sails - to potentially take private legal action. He said when contacted yesterday he was ''thrilled'' at both the Commerce Commission's findings and its efforts now to repay investors.

However, he was ''surprised'' the payment was not higher than 85c, considering there had been higher payouts from other, separate and unrelated, diversified funds.

He maintained concerns about ''eligibility'' criteria for some investors, which included those involved following estate transfers after death, existing pre-payment errors and securities which had been held in trust.

''This [eligibility] is the unanswered question at present for some of those investors,'' Mr Marshall said.

There were ''several aspects'' of the offer which required more scrutiny, Mr Marshall said.

The eligible Credit Sail investors will receive about $850 for every $1000 they lost. Potential payments range from $132to $2.5 million. Commerce Commission chairman Dr Mark Berry said yesterday more than 2550 investors would recover about 85% of their lost capital, noting ''most of these investors were elderly'' and having the money returned would have a big impact on the quality of their lives.

''This is a substantial payout that will have a significant impact in some communities,'' Dr Berry said in a statement.

For example, in Otago and Southland, investors would receive just under $16 million, while others in the Auckland region would get more than $10 million back, he said.

Others to benefit from the payout included charities and community organisations, which collectively would get $4.6 million, he said.

The investors could expect to receive some mail around Easter, outlining their eligibility for payment from the $60 million settlement fund, Dr Berry said.

Dr Berry cautioned investors that if they decided to accept the offer, overseen by the Public Trust,

the settlement terms included they had to agree to release the five companies or any other persons connected with Credit Sails, from any legal liability.

''Investors who wish to accept the settlement payment cannot also take legal proceedings,'' Dr Berry said.

The Commerce Commission had reached the view Credit Sails was marketed and sold in a way that might have misled investors under the Fair Trading Act, Dr Berry said.

The companies had ''strongly disagreed'' with the commission's views, that there were grounds to bring proceedings against the companies', and that any claim for breach of the Fair Trading Act would be ''strenuously defended'' by them, Dr Berry said.

''In the circumstances, the Commission decided that a better outcome for investors would be produced through the prompt creation of a voluntary scheme to compensate investors,'' he said.

Any Credit Sails investors whose eligibility for repayment is questioned can contact Simon Hartley, in confidence, at simon.hartley@odt.co.nz or direct dial (03) 479-3527.