During the past year, Fund Managers Canterbury Limited, with the support of the Trustee, continued the work of realising outstanding loans for repayment of investors in the Canterbury Mortgage Trust Fund (CMT).
As at 31 March 2012, a total of $202.5 million had been repaid, equating to 80.5c in the dollar (excluding any tax refunds that may accrue to investors). This week a further 2.5c was paid to investors, bringing the total repaid to 83c, with the next instalment dependent on the realisation of one or more of the remaining 20 loans.
Events to Date
Investors will recall that in June and July 2008, the Fund began receiving a large number of withdrawal requests. This was in effect, a “run on the bank”. Although the Fund held a prudent cash reserve to meet withdrawals in the ordinary course of business, it was apparent the Fund would not in a position to meet the increasing level of withdrawal requests as they fell due. This was because the Fund’s investments were in secured first mortgages that would be difficult to realise at short notice. To protect the Fund from this unprecedented level of withdrawals, the Fund Manager suspended all withdrawals, making the effective date for their payment March 2009.
To ensure all investors would be treated equally, on 11 February 2009 with the consent of the Trustee, the Fund Manager resolved to wind up the Fund. This was so all investors could be repaid on a pro rata basis as assets were realised, which would avoid the situation of the investors who had made the initial withdrawal requests being preferentially repaid.
At the time the winding-up began in 2009, the effects of the Global Financial Crisis which began in early 2008 were being sharply felt in New Zealand. A sluggish economy, the demise of a number of finance companies, and a soft property market would make it difficult for many of the Fund’s borrowers to refinance so that they could repay the Fund when their mortgages were called up. When the Fund took possession of properties after a borrower defaulted, the soft property market in turn made it difficult to sell. Because all of the Fund’s first mortgage lending was on the basis of registered valuations and relatively low loan to valuation ratios with the approval of Trustee, has resulted in recoveries being higher for the Fund and its investors when compared with other funds where these precautions did not exist.
Since the decision to wind up the Fund, realising the fund’s assets has been supervised by the Trustee, which contracted an experienced third-party recovery consultant to manage the realisation process.
The audited financial statements for the year to 31 March 2012 show the Fund is in the latter stages of the winding up, with a total of 20 outstanding loans compared with the 297 at the date of the suspension decision. Consistent with the Trustee’s instructions, the winding up continues on the basis of an orderly realisation of assets, which means no “fire sale” along with a determination by the recovery consultant to pursue all means of recovery on behalf of investors.
During the year, the Fund incurred a $2.2 million loss on operations which offsets gains made during the 2011 year. Under the PIE legislation, all profits and losses are required to be allocated to unit holders and each unit holder has now been allocated a share of this loss, as shown in each investor’s PIE tax certificate. The loss has occurred through a combination of:
* reduced mortgage income from the remaining impaired loans,
* the almost static cost of administering the trust in wind-up mode and,
* the revision of the market value of the remaining loans in light of continuing stagnation in certain areas of the property market.
Fund Managers Canterbury is in regular consultation with the Trustee over the progress of these latter stages of the winding up with the extent of our on-going involvement in the Trustee’s hands.
A careful and conservative assessment of the realisable value of the 20 still outstanding loans indicates a further capital repayment of about 4c in the dollar would be available from these loans. We are however hopeful the actual realisation would produce another 3c to 4c which would indicate the total capital repayment from the winding up could reach 91c, exclusive of any tax benefits accruing to an individual investor. Depending on their tax status, some investors may have received up to a further 2.5c and others may have been able to receive a tax refund within their own tax return process.
We are determined to get repayment of these last 20 loans. They are the most difficult and time-consuming to recover, but please be assured we are still strongly pursuing their recovery.