Provident Capital investors dealt another blow
Investors who put their faith in the supposed safety of bricks and mortar have been dealt another blow with mortgage fund manager Provident Capital being placed in receivership.
PPB Advisory was appointed receiver by the Federal Court in July after the trustee of Provident's fixed-term interest debenture fund, Australian Executor Trustees (AET), took action over concerns about Provident's financial position, even though it had not missed any payments to investors.
About $82 million (85%) of the fixed-term interest portfolio was more than 180 days in arrears, according to an information booklet produced by Provident Capital in April. And lower valuations of three properties in the portfolio could have resulted in a $16 million deficiency in net assets, according to a PPB review of Provident undertaken for AET earlier this year.
PPB's Marcus Ayres says he hopes to get a "meaningful" return for the 3500 fixed-term debenture holders who are owed a total of $128 million. Analysts speculate this may mean investors - some locked in to 2017 - get more than 50% and maybe even up to 75% of their money back.
Investors in Provident's Monthly Income Fund (which was advertised in the July edition of Money) and High Yield Fund, totalling about $35 million, have received their June distributions but redemptions have been temporarily suspended for both funds. Both are closed to new investors and any application monies received after June 25 are being refunded.
The receivers are reviewing the overall strategy of each fund and will contact investors to update them on their future. It is understood that most of the mortgages underpinning these funds are not suffering from arrears.
O'Sullivan had warned AET chief executive Philip Joseph on May 2 that if it went to court over Provident's difficulties it would be "the end of the business". And it is understood that some debenture holders are very unhappy about AET's move to seek a receiver.
The court heard that O'Sullivan had tried to establish a separate responsible entity for the MIF and the HYF in May, thereby quarantining them from any impact of the appointment of a receiver to Provident.
"His long-term planning demonstrates that Mr O'Sullivan saw the writing on the wall," Justice Rares said. "He intended that the income that those funds would derive would be earned by Provident Funds Management [a related company controlled by Mr O'Sullivan but not a subsidiary of Provident] and so be 'siloed' or protected from the consequence of the appointment of a receiver to Provident."
Justice Rares said O'Sullivan was correct in pointing out the very serious consequences of receivership, as experience showed that in such circumstances properties could be sold for less and that a receiver imposed an extra layer of costs and expenses on a business.
Justice Rares criticised Provident's failures "to give full and accurate disclosure in relation to its financial affairs and the state of the loans in public fund-raising documents and to the court".
The demise of Provident, which seemed to have weathered the GFC and its aftermath, means 11 debenture companies, owing investors about $1.4 billion, have been placed into receivership since March 2007.
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