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The debt owed to listed Heartland New Zealand by the Dunedin-based managers of the failed Victoria Property Fund was inherited last year from another company.
At one point in 2006 the group within the Victoria Property Fund owed $7.55 million to original lender CBS Canterbury.
A manager of the Victoria fund, Craig Myles, of Britannia Management Ltd, in Dunedin, has told investors Heartland had withdrawn its banking facility as of April 30 this year and was demanding repayment of an unspecified debt, of which Heartland has the right to take remaining property assets and sell by mortgagee sale.
Heartland, which is preparing to apply for a banking licence from the Reserve Bank, emerged following the merger in January 2011 of CBS Canterbury, Southern Cross Building Society, Marac Finance Ltd and Heartland Financial Services Ltd.
The respective loan books of all the companies were combined, with Heartland's loan book asset base in April having grown to more than $2 billion, of which 5% was non-core property standing at $169 million, including $58 million in investment properties.
Heartland chief risk officer, Mark Mountcastle, was contacted yesterday and confirmed the debt in question with Britannia came from "acquiring a legacy loan", from the merger process with CBS Canterbury.
He declined to give any specific details on the amount owed or proceedings, citing client confidentiality, other than saying that in general, Heartland "always acted to protect the interests of its shareholders, should any loan be at risk".
Mr Myles told investors if Heartland ran a mortgagee sale of the Richmond land lots, it was "likely" the land would be sold below its market value, so there would be no surplus funds for investors.
A 2006 prospectus for the Victoria Property Fund outlined how parent Victoria Properties Consolidated Ltd had a total $7.55 million in group loans from CBS Canterbury as at March that year.
The loans were for $300,000, $372,000, $1.08 million, $1.5 million, and $4.3 million. The loans were secured with first-charge registered mortgages over properties in Christchurch, Porirua, Richmond and Tauranga. Victoria Properties Consolidated Ltd had booked a loss of $142,000 in 2006, after losing $690,000 in 2005.
The Richmond property is the last asset of the Victoria fund, having been purchased for $5.25 million in 2005.