SPI allegedly breaches deed with $1.2m loan

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SPI Capital has allegedly breached a property syndicate deed by borrowing $1.2 million against a property without the knowledge of investors and lent the money to an unrelated entity.

Thursday, March 18th 2010, 5:45AM 1 Comment

by Jenha White

Investors of the Gloucester Syndicate in Christchurch have taken legal advice on the management of the syndicate by SPI Capital and have alerted the Securities Commission.

Brown Lawyers, acting for investors in the syndicate, says it is apparent from documents inspected that Tranche B of $1.1 million in an AXA Loan agreement was not borrowed for any of the permitted purposes under the Deed.

"In fact it was borrowed for the purpose of on-lending to another entity unrelated to the investors, specifically for the purpose of assisting with facilitating establishment of another syndicate."

In October 2007 SPI Capital refinanced the Gloucester syndicate BNZ loan with a $6.6 million facility with AXA New Zealand. Tranche A of the facility was used to refinance the BNZ loan and was drawn to $5.4 million. Tranche B of the facility was drawn to $1.14 million.

A Custodian Deed dated 15 October 2007 between SPI Assets and the Gloucester Syndicate records that SPI Assets received $1.08 million by way of loan which it then advanced to Treble investments.

Treble Investments is a company ultimately owned by the some of SPI's shareholders.

The deed says "The scheme has raised a cash surplus and the investors have agreed to advance those funds to an investment company, Treble Investments".

The loan was made on an on-demand basis secured by a caveat protecting an unregistered third mortgage over a property owned by Treble Investments in Hamilton.

Brown Lawyers says "in that case the borrowing of Tranche B required a resolution of the investors pursuant to clause 5.4 and without that resolution the borrowing was a breach of the Deed by the manager".

SPI Capital could not be reached for comment.

The caveat referred to in the Custodian Deed was registered on 23 July 2008 and Brown Lawyers says that means the loan from Gloucester Syndicate to SPI Assets was completely unsecured from October 2007 until July 2008.

Brown Lawyers says although there is a caveat protecting the unregistered mortgage, the priority amounts in favour of the first and second mortgages are such that it would appear from the information available that there may be no effective security for the loan.

It also says advancing $1.2 million of the investors' funds on an effectively unsecured basis clearly would not meet the standards of clause 5.1 which includes an undertaking from the manager to do all such things and take all such actions as a competent and experienced manager of real property would do.

"The manager appears to be in breach of the terms of the Deed in that respect also."

An investor in the Gloucester Syndicate who wanted to remain anonymous says the two-year loan with AXA came to an end in October last year and was renewed until 30 June 2010.

The investor says AXA has revalued the Gloucester syndicate building at $10.5 million and this puts the loan into default because the loan to value ratio currently exceeds the maximum allowable of 55%. It is currently sitting at 63%. The investor says this means to reduce the loan to 55% the syndicate needs to repay $900,000.

"The current situation of the manager collecting the loan from the manager is a huge conflict."

Investors say SPI has agreed to pay $200,000 this Saturday but the balance is needed by June 30.

"If SPI does not repay the loan it is most likely that investors will be called on to fund the reduction. This is an extremely serious situation and would never have occurred if the manager had not increased the loan by $1.1m.

"With the June deadline we cannot afford for SPI to drag the chain by saying their property still has not sold - leaving us without sufficient time to lodge legal action to recover the loan from SPI."

The investor says SPI admitted at the Christchurch and Alexandra meetings that they were unable to pay the $1.1m by March 31 as previously promised and this is the third time they have tried to pay back the money.

Gloucester syndicate investors are having a meeting tomorrow to vote for the removal of management and to change the management agreement and ownership deed.

"A new manager could issue a statutory demand for payment that would force SPI into action; other avenues would also be open for the new manager to use," says an investor.

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

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