Southern investors in the failed Dunedin development - possibly owed more than $2.5 million - are still considering whether to join the queue of litigation forming against Auckland developer Dan McEwan, promoter of the Hilton Dunedin redevelopment and co-owner of more than 30 Pounamu apartments in Queenstown.
Investors in some of the Pounamu managed apartments in Queenstown have alleged that recently bankrupted Mr McEwan, of the McEwan Group, and his financier Strategic Finance, were too closely aligned.
The finance company now has control of 34 apartments in which Mr McEwan had an interest and is understood to be seeking $20 million in settlements from investors, which many are disputing.
As more unravels around the McEwan Group operations, spurred on by struggling finance companies' claims on money owed to them, the term "habitual investors" is being bandied about more often, mainly as a claim against failed McEwan developments and lost investments.
Southern investors are understood to be out of pocket between $2.5 million to $3 million from lost deposits and shareholdings associated with the demise of the Hilton Dunedin development.
It is understood, but not confirmed, that many of the southern apartment investors had put in between $50,000 and $150,000 each as their 10% deposits.
One investor source, who asked not to be named, understood some investors were "still considering their options". However, with Mr McEwan bankrupt, he is not allowed to instruct lawyers to release documents.
"At present, it's a question of who is allowed to provide the information needed," the source said.
In December last year, Mr McEwan was convicted on six Securities Act breaches in the Auckland District Court, which included not providing a registered prospectus or accompanying investment statement when offering investment in developments.
The Ministry of Economic Development took the case to court using the circumstances of Dunedin couple Peter and Susan Gale, who had invested $61,700 in two McEwan Group projects, Agnes Water in Queensland and Sovi Bay in Fiji.
Strategic Finance, which The New Zealand Herald reported earlier the week was potentially seeking settlement of $20 million worth of sale and purchase agreements on Pounamu apartments, has denied it was too closely aligned with Mr McEwan, saying Pounamu investors were obliged to meet contractual obligations, which some are disputing.
Separately, Strategic Finance itself froze about $330 million of investor funds in August last year and in late December it gained investor approval to pay back the funds over time through orderly asset sales.
Mr McEwan had used South Canterbury Finance for the Dunedin deal, but the relationship came unstuck late last year, and South Canterbury enacted a Property Law Act notice to take control over the Dunedin building, in default of debt repayments.
The size of the debt, including penalties, is now about $7.5 million and South Canterbury is considering tenders for the 1930s nine-storey building.
A month after Mr McEwan was adjudged bankrupt in early March, over a $978,000 debt, three of the Pounamu apartments were taken over by the ANZ-National bank, in default of loans.
The apartments are now in the control of lawyers acting for the bank in default of loans held by Pounamu Trustees Two Ltd, a company in which Mr McEwan and his son Kelly each own a 25% share, according to Companies Office records. It is not in receivership or liquidation.
However, the ANZ has been appointed as the "receiver of income" under provisions in the mortgage documents, and now holds the certificates of title for apartments 8, 12 and 16, which could possibly be sold.
In April 2007, while promoting the post office redevelopment, Mr McEwan said McEwan Group had completed almost $150 million in construction in 2006 and had $400 million on its books in 2007 around New Zealand, Australia and the Cook Islands.
Just before an investment evening hosted by Mr McEwan for southern investors in late 2006, he said interest in the redevelopment had been considerable and the meeting would provide full information.
"It is quite critical to us that developers know what they are getting into so they don't overcommit," he told the Otago Daily Times.
In September last year, about 12 weeks before South Canterbury took control of the post office and less than six months before he was adjudged bankrupt, Mr McEwan said while it was a difficult time for developers, because of finance companies in moratorium or receivership and the credit crunch, he was confident about financing the Hilton Dunedin.
At that point, more than 25 of the 34 Hilton Dunedin apartments had been sold off the plans and the McEwan Group had 112 hotel suites for sale, priced between $280,000 and $380,000.
In January this year, Mr McEwan said he blamed in part negative rumours circulating in Dunedin about the project during the previous six months for holding up apartment sales and the January start date for construction.
It was well known a small group of Dunedin professionals were critical of the Dunedin project; however, they have maintained their advice to would-be investors was to be "cautious" before committing to the redevelopment.
At that time, the price paid for the building became a sticking point for some investors, who claimed Mr McEwan was not forthcoming with documents requested.
When asked at the time, Mr McEwan said he had paid about $7 million and a year later, after organising contracts, architectural studies and in an appreciating property environment of 10%-15% per annum, had on-sold the building to the shareholder entity of investors for the at-valuation price of $8 million.
The scope and investment loss of the two southern projects in Dunedin and Queenstown pale into relative insignificance compared to Mr McEwan's once expansive developments around Auckland, where hundreds of millions of dollars worth of projects have been taken over, sold off or placed in the hands of receivers.
• Habitual investors are . . .
The Securities Act 1978 requires that securities or investment opportunities offered to the public must be accompanied by a registered prospectus or investment statement.
Habitual investors, persons who invest money in the course of their business, are an exception to this rule and do not receive a prospectus or investment statement.
• Timeline
Timeline of Auckland developer Dan McEwan's involvement in Dunedin's former chief post office.
August 2006: Mr McEwan, of the McEwan Group, buys the former chief post office for an undisclosed sum, announcing $50 million plans for a 4-5 star hotel, which will eventually be valued after development at $85 million. At the time, the 1930s 12,500sq m building, which sits on a 1979sq m site, had a capital value of $3 million. The adjacent car park, on a 1019sq m site, was valued at $700,000.
July 2007: Mr McEwan secures Hilton International as operator of Hilton Dunedin, the city's first Hilton. Plans for 97 suites and 34 apartments, with further resource consent gained for a new upper floor to accommodate up to a further 10 apartments; 25 apartments sold off the plan.
August-September 2008: McEwan Group seeks joint venture partnership, saying project could otherwise be put on hold because of global credit crunch. DCC and ORC decline to become involved.
October 2008: Otago Finance confirms it has issued Property Law Act notice to McEwan Group, which forces a mortgagee sale to recover its $5 million loan, which later balloons to $7.5 million with penalties.
November 2008: McEwan Group projects in Waiwera, north of Auckland, put on hold; application made by Inland Revenue to place four McEwan subsidiary companies in liquidation.
Early-December 2008: Mr McEwan convicted of Securities Act breaches over projects in Queensland and Fiji.
December 24 2008: Otago Finance parent South Canterbury Finance takes over Dunedin project to secure its $7.5 million loan and penalties against the McEwan Group.
February 2009: Mortgagee tender/sale of Dunedin's former chief post office.
March 2009: Mr McEwan adjudged bankrupt over $978,000 debt.
April 2009: Three Pounamu apartments in Queenstown, co-owned by Mr McEwan, taken over by bank because of loan default. South Canterbury Finance to consider more than three tenders for Dunedin building this month.
