$60m fund to reimburse investors

Neil Paviour-Smith.
Neil Paviour-Smith.
Thousands of investors in the failed investment product Credit Sails received good news yesterday, following an agreement which will see them paid back 85% of their money.

As part of a settlement between the Commerce Commission and the five companies associated with Credit Sails, the companies agreed to create a settlement fund of $60 million to be distributed to investors who lost money when Credit Sails failed in 2008.

The money would be available from March.

More than 3000 investors bought Credit Sails, most of them were retail investors with a limited understanding of complex financial products. A significant number of investors were now aged 70 and over, commission chairman Mark Berry said.

The companies involved in establishing the fund were Forsyth Barr Ltd, Forsyth Barr Group, Credit Agricole Corporate and Investment Bank, Credit Sails Ltd and Calyon Hong Kong Ltd.

Credit Sails were sophisticated debt securities marketed and sold to the New Zealand public in 2006 with the prospect of 8.5% interest income and capital protection.

The commission said $91.5 million was raised through the offer. Credit Sails failed in 2008 and the notes were now virtually worthless, it said in a statement.

On the information available, the commission estimated the total loss for those eligible for a share of the settlement fund was around $70 million.

The companies had not admitted liability and did not accept the commission's views on the matters, Mr Berry said.

Forsyth Barr managing director Neil Paviour-Smith welcomed the settlement.

Credit Agricole CIB (formerly Calyon) and Forsyth Barr had paid $60 million which would be held in a trust account from which payments would be made to eligible investors.

''Since the failure of Credit Sails ... we have worked tirelessly and applied considerable resources to work with the trustee, Calyon, and subsequently Credit Agricole CIB, the Commerce Commission and other regulatory authorities to examine why the product failed and also whether anything could be done to restore investors' capital.

''We have worked hard to achieve a really positive outcome for investors, many of whom had written off the investment.''

The payout was generous and recognised the extraordinary market turmoil during the global financial crisis, Mr Paviour-Smith said.

The payout also recognised a desire to find a timely solution to the commission's investigation and the risks investors assumed by subscribing to the offer.

Forsyth Barr did not accept the commission's views that some representations might have been construed as having breached the Fair Trading Act. However, proceedings arguing the case would have taken a considerable amount of time and would have come at considerable cost to all parties, he said.

Arguing the case would have prolonged the settlement and provided no certainty to investors who, like Forsyth Barr, were keen to put Credit Sails behind them.

''This is a significant settlement for us but Forsyth Barr is a long-established well-capitalised firm. Our share of the settlement was paid last week and we now look forward to assisting with the distribution of funds to eligible investors,'' Mr Paviour-Smith said.


Commerce Commission's views on Credit Sails

• The representations that Credit Sails were "capital protected'' were misleading and deceptive.

•  Credit Sails were marketed to the average investor.

• Credit Sails were highly complex and unsuitable for the average investor.

• The companies who marketed and sold Credit Sails ought to have known the product was unsuitable for the average investor.



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