Mike Pero accusations fly

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The final step in the sale of Mike Pero Mortgages has started, accompanied by a war of words between joint venture partners NZF and Liberty Financial and revelations of a disputed shareholder loan.

Thursday, May 16th 2013, 6:00AM 1 Comment

by Susan Edmunds

NZF has called a meeting of shareholders to decide whether or not it should sell its 50% stake Mike Pero Mortgages Holdings (MPMH) to its joint venture partner Liberty Financial.

NZF’s board decided in August last year, to sell its stake to Liberty as the relationship between the two parties had become untenable.

A year earlier Liberty had alleged that NZF was in default of the joint venture agreement as it “had ceased or threatened to cease to carry on all or substantially all of its business or operations.”

When asked about this Liberty executive director Peter Rollason said the joint venture was formed in 2006 and it was on the basis both parties would contribute operationally and financially.

“It became clear after a series of business divestments… that NZF had ceased all, or substantially all, of its business operations and was no longer able to contribute operationally or invest in MPMH as intended by the joint venture.”

However, NZF denies this and says in its notice of meeting that it is an investment company and “has not ceased or threatened to cease carrying on business as an investment company.”

Following a breakdown in relationships, court battles and the receivership of NZF Money, Liberty and NZF agreed last September that Liberty would buy out NZF’s 50% stake in MPMH under terms of the joint venture.

But the deal was put into doubt when both parties disagreed on MPMH’s value.

They agreed to an independent valuation being done. That was completed by Simmons Corporate Finance and it put the value of NZF’s stake at $2.8 million, well below the $7.6 million value NZF carried it at in its books.

NZF has challenged the Simmons valuation and commissioned its own report to explain the differences.

That report from Deloitte gave four reasons for the differences. The biggest contributor to the gap in valuations was the worth of Mike Pero Real Estate. Other factors include the fact different valuation methods were used, a difference in the assumed level of earnings and differing earnings multiples.

While NZF is disputing the independent valuation conducted under the JV agreement it appears to be stuck with it as is it considered “conclusive”.

“This means the parties are bound by the value determined by Simmons Financial and the company (NZF) must sell its sale interest to Liberty in accordance at the value set,” NZF says in it notice of meeting.

The meeting notice also reveals there is a disputed shareholder loan of $306,000 due from MPMH to NZF to cover expenses incurred in establishing MPMH. It also claims that Liberty’s conduct will erode the value of MPMH.
Rollason said this loan has been questioned by both MPMH and Liberty and was an impediment to the completion of the MPMH accounts.

“The independent valuation refers to the loan but does not attempt to independently verify it.  Despite repeated requests from MPMH and Liberty to provide relevant documentation, no such documentation has been made available by NZF. The notice incorrectly implies that only Liberty disputes the loan whereas MPMH itself also disputes the loan after obtaining independent legal advice. Furthermore, NZF’s own auditors have been unable to locate or identify any loan documentation.”

Liberty offered to make an ex gratia payment of $279,853 which is the amount sought by NZF less establishment costs incurred by Liberty on the same basis as alleged by NZF, Rollason said.

“NZF has chosen not to disclose this in its notice and prefers to encumber MPMH with a loan that cannot be independently verified.”

In its notice of meeting NZF directors make no recommendation to shareholders whether to sell to Liberty or not.

However the motion requires a 75% majority and the company is tightly held by directors.

They say if the resolution is passed they will transfer their shares to Liberty at $2.76 million however they question whether Liberty will repay the shareholder loan.NZF directors consider there is a settlement risk and that as Liberty is a private company “it is unknown whether it has the means to settle or not.”

If the resolution is not passed “Liberty is likely to continue its litigious approach and conduct itself in a manner that erodes the value of the MPMH business.”

“Consequently the (NZF) will remain in a dysfunctional joint venture relationship and will hold an asset that is likely to continue to decrease in value.”

“Assuming that Liberty will continue its High Court proceedings, further litigation costs would be incurred by (NZF).”

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