SCF heads 'beyond cavalier', court told

Lachie McLeod
Lachie McLeod
Three former heads of South Canterbury Finance "went beyond cavalier" and contributed directly to the company's collapse, the Crown alleged on the opening day of what has been described as New Zealand's biggest ever fraud trial.

Former SCF chief executive Lachie McLeod, 50, and two of the company's former directors, lawyer Edward Sullivan, 72, and accountant Robert White, 70, deny a $1.6 billion fraud.

They pleaded not guilty in Timaru today at the start of their High Court trial, which is set down for 3-4 months.

In the Crown's opening submissions, Colin Carruthers QC outlined the case against the trio.

He said the directors "evaded or ignored" controls of how the company should operate.

"The hallmark was related party lending highly structured to hide it," Mr Carruthers said.

They "moved beyond cavalier and contributed directly" to the collapse on August 31, 2010.

Because of the company's participation in the Crown retail deposits scheme, 35,000 investors were bailed out by the taxpayer to the tune of $1.6b.

The court was shown a February 2008 email chain between McLeod and accountant Terry Hutton, which said: "Obviously trying to hide my loan as a related party and now need to flesh out fully ... [this] will avoid my name being directly on the prospectus which will be wise in this environment."

SCF failed to keep proper accounting records under its legal obligations and industry rules, which amounted to serious and widespread offending, Mr Carruthers said.

The trial, before Justice Paul Heath alone, is a document heavy case, with the Crown relying heavily on the evidence of paperwork.

A total of 40 Crown witnesses, including former SCF employees, people involved in transactions with various companies, and forensic or expert witnesses, are expected to be called.

The start of the trial was delayed for an hour this morning over concerns that a comment made last week by the boss of the Serious Fraud Office could have led to a perception that Justice Heath was based towards the Crown.

SFO director Julie Read referred to Justice Heath as "our judge" while speaking at the 13th Annual Corporate Insolvency and Restructuring Conference in Auckland last week.

Lawyers for the three accused, Pip Hall QC, Bruce Squire QC, and Jonathan Eaton QC wanted a delay to the start of the trial in order to look more closely at the issue and to see if the judge should consider stepping down from presiding over the trial.

Justice Heath said it was "extraordinary" to think anyone would possibly think he would be anything other than impartial.

He declined to recuse himself, saying proceedings should continue, and if defence counsel wished, they would be given time to formally pursue the matter further next week.

The trial continues, with the Crown's opening address expected to last all week.

- By Kurt Bayer of APNZ