Consumer finance: NZ's South Canterbury Finance collapse will have heavy cost

South Canterbury began to run into trouble some time ago - and under a "too big to fail" approach, it received more than NZD1,200 million to keep it afloat.

Even so, it sank.

As part of the financial sector support package, New Zealand, like many other countries, also laid out a raft of guarantees.

Now, as the picture of the shortfalls at South Canterbury is clearing, the government has said that the cost to the state under those guarantees will be approaching NZD400 million.

Now, if the 40 million strong sheep population of NZ were to pay for that, the cost would be about NZD6.66 (the number of the beast so that's appropriate) per sheep.

But New Zealand has only 4.4 million million people. Give or take a few. That means that the cost of the guarantees (note, this is not a bail-out or rescue: the company has, to all intents and purposes, imploded) will work out to about NZD100 per person. But take out pensioners, the underaged and the unemployed and that shoots up to somewhere just south of NZD375 per in-work taxpayer.

And NZ taxes are not cheap as it is.

The collapse of the company, based near the Timaru fault which, on 4 September had its first major shift in some 16,000 years (according to NZ sources), has led to some serious concerns about the sector as a whole: South Canterbury Finance was, it is said, NZ's second largest non-bank finance company.

The company was run by Allan Hubbard and his wife Jean. Octogenarian Hubbard is - even by his supporters - regarded as something as a folk hero in an anti-hero sort of way: they talk about his "old fashioned accounting practices."

It's those accounting practices that will now come under scrutiny. The company - now 75 years old - posted a loss last year, the first in its history. NZ media reports that he "poured his own assets and cash into the faltering business to ensure that investors didn't lose their money."

Although not a bank, the company was authorised to take deposits. Those are guaranteed, mostly in their entirety.

There are disputed versions of how the receivers came to be appointed: in one version, it is the directors rather than Hubbard who eventually called it a day.

Hubbard's personal finances were already under scrutiny: in June the investment companies Aorangi Securities, seven charities and a company that appeared with no prior history (Hubbard Management Funds) were placed under statutory management. The latter reportedly held some NZD70 million - a figure later downgraded along with a statement saying that its assets had been significantly over-valued.

Shortly afterwards, the Serious Fraud Office began an investigation in to several aspects of the companies.

There had been several changes in senior management but the most recent senior appointee, CEO Sandy Maier, arrived in December last year - and promptly said that the company was in a poor state due to bad lending decisions between 2005 and 2008. He has said that the board had tried to find a buyer.

But Hubbard has ploughed huge amounts of money into the company: in February this year he sold his stake in Helicopters NZ and Scales Corp and put some NZD162.5 million into the shaky finance house.

But it was too little, too late. And Maier is anxious that people realise that the problems were long standing; "These assets didn’t hop on our books by themselves and these related party loans didn’t make themselves. People mismanaged the place frankly,” he told website interest.co.nz to day after the receivers were called in. Hubbard, however, released a press statement via a PR agency saying that he would have been able to help the company had he not been ousted from the board.