The collapse of South Canterbury Finance last year appears to have been unavoidable, according to documents released by Treasury yesterday. But deletions in the documents prevent a more conclusive picture.
After last week's announcement taxpayer exposure to losses from South Canterbury was to rise from $900 million to $1.2 billion, calls were made to release information to justify the Government's handling of the matter.
Treasury yesterday released 200 documents totalling thousands of pages outlining Treasury and Reserve Bank advice to ministers, correspondence with South Canterbury, reports and advice to Treasury from external parties and correspondence with Trustees Executors and the receivers, Grant Thornton.
The documents, obtained under an Official Information Act request, show many "commercially sensitive" omissions, including the identities of potential cornerstone investors and dollar values offered for South Canterbury's assets. From early August last year South Canterbury's demise was predicted in much of the correspondence, with a Treasury report on August 3 advising the Crown that "internally, SCF appears to have accepted that without recapitalisation SCF will fail on or about 31st August 2010".
Treasury "considered it probable" South Canterbury would default on that date and the Government had to make provision under the Crown guarantee, estimating the Crown's share of the loss would be $665 million.
Minister of Finance Bill English and Prime Minister John Key were updated by Treasury on August 3, in a separate note, and given advice on potential "white knight" investment options.
These included "several high-level proposals" seeking Government support and also "third parties" - all wanting to prevent South Canterbury's default and, therefore, receivership.
"To date, Treasury have declined to provide in principal support for these proposals," Treasury manager of the guarantee scheme John Park told Mr English.
The 85-year-old company subsequently collapsed on August 31 and was placed in the hands of receivers.
To oversee an orderly sale of assets, the Government immediately took over the debt by injecting $1.775 billion to repay 35,000 investors and also some creditors who had been propping up the company with loans.
Critics have questioned whether South Canterbury warranted being rolled over into a second version of the retail bank guarantee scheme, and later, after it collapsed, whether the Government should have accepted earlier offers, rather than taking on the entire debt.
