Hanover Finance#Start of decline 2008

{{Infobox company

| name = Hanover Group

| logo =

| type = Private

| fate = Receivership

| predecessor = Elders Finance

| successor =

| foundation = {{start date |1999}}

| founder =

| defunct = {{end date |2010}}

| location_city = Auckland

| location_country = New Zealand

| location =

| locations =

| area_served =New Zealand

| key_people = Mark Hotchin, Eric Watson

| services = Property development

| subsid = {{unbulleted list |United Finance |Nationwide Finance |FAI Finance}}

}}

Hanover Finance was a New Zealand non-bank finance company that focused on lending for high-risk property development that failed in 2010 under the leadership of Mark Hotchin. At the time of its failure it was the largest finance company in New Zealand. The Hanover Group{{Cite news |work = Scoop |title = Net profit up 20% for Hanover Finance |date = 11 March 2007 |url = http://www.scoop.co.nz/stories/BU0703/S00202.htm}} also had interests in property and was responsible for developing Matarangi Beach Estates and golf course, and acquired completed lots at the Jacks Point property sub-division{{Cite news | work = National Business Review | last = Hutching | first = Chris | title = Spring thaw at Jacks Point? | date = 12 December 2008 | url = http://www.nbr.co.nz/article/spring-thaw-jacks-point-38941}} in Queenstown. The Group also had property and finance interests in Australia.{{Cite news| work = Money Management| last = Freeman| first = Glenn| title = Hanover profit linked with boosted Australian loan book| date = 14 September 2006| url = http://www.moneymanagement.com.au/news/Hanover-profit-linked-with-boosted-Australian-loan| url-status = dead| archiveurl = https://web.archive.org/web/20111001075109/http://www.moneymanagement.com.au/news/Hanover-profit-linked-with-boosted-Australian-loan| archivedate = 1 October 2011| df = dmy-all}}

History

Mark Hotchin and business partner Eric Watson bought Elders Finance in 1999. Elders, and a number of other finance companies, were brought together to create Hanover Group.{{Cite news

| last = Taylor

| first = Phil

| title = Mark Hotchin: The man behind the money

| work = New Zealand Herald

| date = 19 February 2011

| url = http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10707295}} With $650 million in assets, this was New Zealand's third largest finance company at the time. In 2007, Forbes listed Hotchin and Watson as the 33rd and 34th richest people in New Zealand and Australia.{{Cite news

| work = Forbes

| last = Doebele

| first = Justin

|author2=Allison Fass

| title = Australia and New Zealand's 40 richest

| date = 12 February 2007

| url = https://www.forbes.com/global/2007/0212/037.html

}}

Hotchin's interests ranged outside the traditional finance company model. In 2003 Hotchin through the Hanover Group bought a 10% stake in Tower,{{cite web

| work = ShareChat.co.nz

| title = Hanover increases Tower stake and ante

| date = 14 July 2003

| url = http://www.sharechat.co.nz/article/964f7fcf/hanover-increases-tower-stake-and-ante.html

}} a large fund management and insurance business. Hanover wanted a better deal for investors and forced Tower and owners GPG to review the capital raising and underwrite deal they had agreed.

In 2007 Hanover Group made an after tax profit of $105m. Controversially Hanover Finance paid NZ$45.5 million in dividends to Hotchin and Watson in the year ending 30 June 2008.{{cite web

| title = Still waiting for answers on $45 million

| last = O'Sullivan

| first = Fran

| work = New Zealand Herald

| accessdate = 6 March 2011

| date = 18 August 2010

| url = http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10666830

}}{{cite web

| title = Message to Hotchin – own up or shut up

| last = Gaynor

| first = Brian

| work = New Zealand Herald

| accessdate = 6 March 2011

| date = 4 March 2011

| url = http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10710148

}} Much of these dividends were then reinvested back into the company to reduce related party transactions, which at the time were around 14% of the loan book.

=Start of decline 2008=

As a result of the 2008 financial crisis, in July 2008, Hanover Finance and United Finance froze repayments of NZ$554 million owed to 36,500 investors.{{cite web

| work = Good Returns

| last = Macalister

| first = Philip

| title = Hanover details plans

| date = 20 November 2008

| url = http://www.goodreturns.co.nz/article/976494630/hanover-details-plans.html}} After a vote over 85% of investors agreed to a debt repayment plan for the return of their capital over a 5-year time scale, predicated on the recovery of the New Zealand property market. Hotchin and Watson pledged a property, benefits and cash package worth up to $96m{{cite web

| work = New Zealand Herald

| last = Slade

| first = Maria

| title = I feel a moral obligation to help – Hotchin

| date = 6 December 2008

| url = http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10546795}} to investors as part of the deal. By November 2009 accountancy firm PwC estimated that the package had fallen in value to between $36 million and $56 million, due to a fall in property prices. Over the first year of the debt repayment plan, six cents in the dollar was repaid to investors, however the property market had continued to worsen and it appeared the company was heading for receivership.{{Cite news

| work = Good Returns

| title = Allied's Hanover deal better than receivership

| date = 30 November 2009

| url = http://www.goodreturns.co.nz/article/976496005/allied-s-hanover-deal-better-than-receivership.html}}

In 2009 Hanover was approached by Allied Farmers to buy the assets of Hanover Finance and United Finance, effectively held in limbo by the repayment plan. In December 2009 Hanover Group debenture holders, note holders and bond holders were given another opportunity to vote for receivership or for the new plan with Allied.{{Cite news

| work = New Zealand Herald

| last = Gay

| first = Edward

| title = Hanover investors look to future after yes vote

| date = 16 December 2009

| url = http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10615894}} 75% voted in favour of swapping their debentures, notes and bonds for shares in Allied Farmers Limited. This transaction resulted in Allied Farmers assuming the net asset position of the Hanover Group finance companies.

=Failure=

Allied Farmers put their finance company Allied Nationwide into receivership on 20 August 2010 and as at March 2011 shares in were worth only a fraction of what they were traded for.{{Cite news

| work = Dominion Post

| last = Hunter

| first = Tim

| title = Receivers appointed to Allied Nationwide Finance

| date = 20 August 2010

| url = http://www.stuff.co.nz/business/industries/4045383/receivers-appointed-to-allied-nationwide-finance}}

=Aftermath=

In late December 2011, the Financial Markets Authority (FMA) announced that it proposed to file civil proceedings against the directors and promoters of Hanover Finance Limited and other companies relating to statements made in the December 2007 prospectuses and subsequent advertisements.{{cite press release

|url = http://www.fma.govt.nz/keep-updated/newsroom/media-releases/2011/fma-to-file-civil-proceedings-against-directors-and-promoters-of-the-hanover-group/

|title = FMA to file civil proceedings against directors and promoters of the Hanover group

|publisher = Financial Markets Authority

|date = 15 December 2011

|accessdate = 28 April 2012

|url-status = dead

|archiveurl = https://web.archive.org/web/20130208043100/https://www.fma.govt.nz/keep-updated/newsroom/media-releases/2011/fma-to-file-civil-proceedings-against-directors-and-promoters-of-the-hanover-group/

|archivedate = 8 February 2013

|df = dmy-all

}}

As a result of the FMA's announcement former Hanover Finance's chairman Greg Muir issued a media statement saying that "the FMA investigators were given a substantial amount of evidence demonstrating that the directors conducted themselves responsibly, with appropriate rigour, and made judgments they believed were in the best interests of the company and its investors on the information available to them at the time."{{cite web

|url = http://www.scoop.co.nz/stories/BU1112/S00562/financial-markets-authority-decision-disappointing.htm

|title = Greg Muir Statement responding to FMA}}

In December 2012, the remaining property assets of Hanover and United Finance (with a book value of $13.5 million) were transferred from Allied Farmers to Crown Asset Management, the entity set up to hold assets from failed finance companies backed by the Government's deposit guarantee.{{cite web

|url= http://www.nzherald.co.nz/trade/news/article.cfm?c_id=96&objectid=10855666

|title=Crown entity takes Allied properties

|first= Paul

|last= McBeth

|work=The New Zealand Herald

|date=22 December 2012

|accessdate=1 January 2013}}