The mysterious case of the Allied Farmers' $7m guarantee which wasn't

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Allied Farmers (ALF) is embroiled in yet another dispute over a former Hanover asset, this time over a $7 million guarantee it gave when it sold a Hanover loan in September last year but for which Allied still hasn't received payment.

Thursday, April 7th 2011, 7:27AM 1 Comment

by Jenny Ruth

The purchaser of the loan, whose identity ALF has agreed to keep confidential, is alleging ALF is in default of that guarantee and is refusing to pay for the loan.

ALF sold the loan so it could repay what it owed Westpac, which wanted to eliminate its exposure to ALF.

ALF's report for the six months ended December 31 clearly states the existence of a guarantee.

"The parent company has guaranteed to the purchaser of a loan from our asset management services division that $7 million of proceeds will be collected from the loan. Any forecast shortfall in proceeds the purchaser may claim under the guarantee is provided for in the financial statements and charged to the income statement," the report says.

However, ALF's statement today refers to an "alleged guarantee."

"Our legal counsel say it's a best-endeavour guarantee," ALF managing director Rob Alloway told DepositRates.

The loan had been to a company, whose name Alloway says he doesn't have to disclose, which is in receivership. Allied is that company's only secured creditor, he says.

The underlying assets securing the loan have already been sold by the receiver for more than $7 million and the proceeds are on deposit and accruing interest, awaiting distribution which should be made before December 31 this year, he says.

Alloway's statement says the distribution of the proceeds has "simply been delayed to a greater extent than either the purchaser, receiver or AFL thought would be the case when the loan sale agreement was signed."

Asked whether the purchaser had understood the position of the loan when it agreed to buy it, Alloway told DepositRates: "They had the opportunity to do due diligence on the loan before they committed to the sale and purchase agreement."

In his statement, Alloway says the purchaser hasn't demanded Allied pay it "but purports to reserve its rights. Allied, which did not execute a written guarantee, does not accept that it is bound by (and therefore in default of) a guarantee as alleged."

However, if the guarantee did exist and ALF was in default, "this would also constitute a default under AFL's secured loan arrangements with Allied Nationwide Finance," ALF's former subsidiary which went into receivership in August last year.

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