I deposited money for investment from an automatic payment after the date of statutory management on 20 June 2010. What happens to this money?
Any funds contributed for investments following the date of statutory management were held in Trust. These funds have now been returned in full to investors.
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The media is suggesting that the cost of the statutory management is extensive. When will you provide details of these costs?
We have outlined the costs to September 2010 in our fourth report and our costs to 31 January 2011 in our sixth report. Copies of these reports are available on our website.
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What is the relationship between the statutory management function and the Serious Fraud Office investigation?
The two processes are completely independent and separate. We are responding to requests by the Serious Fraud Office but do not have regular communication with them or know the status of their investigation. Where investors have come to us with significant concerns, we have suggested that they consider voluntarily supplying information to the Serious Fraud Office to assist them with their investigation.
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What is a distressed investor and how do they apply for support from the emergency fund?
A distressed investor is one who is experiencing significant cashflow issues as a result of the statutory management process. The independent assessor will look at the cash resources of each investor and their commitments and any other specific requirements such as medical care. Should you find that your circumstances change, you can apply to the fund or if you have previously applied and been turned down then you may reapply.
Investors that get assistance from the fund will need to sign certain documents that will allow the Statutory Managers to offset the support that they have had against future repayments from Aorangi or Hubbard Management Funds. There were no offsets against the initial 3c in the $1 payment for Aorangi investors that was made in late October 2010.
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Will the payments made be a return of our investment or interest on our investments?
The payments will be a return of the principal investment. We will not pay any interest in the short term. This is consistent with best practice in the circumstances. The reason for this is primarily tax driven. If we pay interest it would be subject to tax in the hands of most investors where as if we repaid the original investment capital it is not subject to tax. We are maintaining records that will allow us to calculate the interest should there be adequate assets and income within Aorangi to not only repay all capital but also the outstanding interest. Our current estimates, which are set out in our sixth report (available on our website) is that there is likely to be a small shortfall in the principal repayments and therefore no interest payments are anticipated at this time.
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I have an investment in Hubbard Management Funds. My statement says that I have an investment in Aorangi Securities as part of my Hubbard Management Funds portfolio. Will I be getting a payment from Aorangi?
Hubbard Management Funds is an investor of Aorangi. Hubbard Management Funds will, therefore receive payments just like all other Aorangi investors. These funds will be deposited into Hubbard Management Funds and can only be distributed when the appropriate basis for distribution to Hubbard Management Funds investors is determined by court direction.
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When will payments be made to investors?
Aorangi investors have received a small payment of 3c in the $1 as the first step in repaying their investment. As noted in our report we hope to make a more significant payment in the middle of 2011 as we realise Aorangi’s investments and receive income from investments.
Hubbard Management Funds investors will receive payments once we have clarity on the correct and fair approach to repay the investors. As we have noted in our reports we will require court direction on this matter. Our legal advisers have indicated that it could be 2012 before any court direction is received. There is always the possibility that this direction may be challenged by an investor, which could further delay payments. We have detailed the key issues in our fourth report released in late October 2010. It is anticipated that papers will be filed with the Court in the third quarter of 2011. It is unlikely that any payment will be made before 2012.
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You have outlined in your reports the need for Hubbard Management Funds to receive court direction on the repayment of investors’ funds. Why is this, what are the processes involved, and will the investors be advised of the process?
As we have noted in our reports, it is not clear whether this is a personalised investment fund or a pool investment fund. The answer to this has a significant impact on the allocation of the funds to each investor in Hubbard Management Funds. To provide everyone with certainty, we consider there is a need for the court to review the evidence for each of the possible distribution methods and to conclude which distribution method is going to provide the most equitable and fair allocation of funds to each investor. The processes to have a court hearing are complicated. You will be aware that there is considerable pressure within the court system and our legal advisers estimate that it is unlikely to be resolved until 2012. In the event that court direction is required every investor will be kept fully informed It is likely that the notice of proceedings will need to be served on each investor to provide them with the opportunity to consider whether they wish to be represented. Clearly, if all investors wish to be represented the process will be extended significantly and therefore we are investigating the ability of having some independent council appointed on behalf of the investors. We would emphasise that we are actively looking for alternatives that enable swifter resolution.
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How much am I exposed to the investments made by Aorangi and Hubbard Management Funds into entities associated with Mr Hubbard?
We covered this matter in our third report dated 30 September 2010 (which is available on our website). There are substantial exposures of both Aorangi and Hubbard Management Funds to South Canterbury Finance and its parent Southbury Group Limited. Given the insolvency of both these companies, there is a high likelihood that the investments will be worthless.
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Why are you selling assets?
Aorangi has a portfolio of first mortgage loans and other loans and investments primarily into farming operations. The commercial loans and first mortgages that Aorangi holds are being rolled over and refinanced in the normal course of business. Mr Hubbard has developed a four year plan to realise the Aorangi assets so the investors can be repaid. We are in negotiations with a number of the borrowers to refinance their loans in order that we can repay Aorangi investors. The investments into farming businesses, by their nature, do not produce a regular cash flow. We have dealt with this matter in each of our reports. Other shareholders and business partners in these farming businesses have approached us and are willing to buy Mr Hubbard’s interests. We are working to establish if these requests are an appropriate course of action. We are in negotiations with a number of parties and will report regularly on the status of these discussions. We will not be “fire” selling these interests.
Hubbard Management Funds has sold a limited number of investments. These sales have been to take advantage of some good asset pricings and also to tidy up some very small investments relative to the overall fund. The primary purpose of these actions has been to obtain sufficient cash flow to meet its obligations to continually make payments to certain venture capital investments of the fund. If the fund does not make these payments the value of those investments will diminish significantly. Our actions have been to protect the value of the investments on behalf of the investors.
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We have an investment with Aorangi. We were advised it was a first registered mortgage. Why is our investment at risk?
Some investors have provided us with authorities showing that they believed they had invested in first mortgage securities over the land. Other investors have provided us with correspondence suggesting a similar type of investment. We reported earlier that the nature of the investments was generally not first mortgage securities over land. The majority of the investments are in fact second mortgages, unsecured advances or are shares in certain businesses in farming operations. These investments carry far higher risks than a first ranking mortgage and some losses will be incurred.
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Who holds the shares and cash that are part of Hubbard Management Funds?
The vast majority of the shares are held in the name of Hubbard Churcher Trust Management Limited which is in statutory management. The cash associated with Hubbard Management Funds is held by Forresters Nominee Company Limited (in statutory management). The reason for these two companies being placed into statutory management was to secure the assets for the benefit of the investors as they were not controlled by the Statutory Managers. Some investments are held in other entities. We are working to transfer these to Hubbard Churcher Trust Management Limited.
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Are the shares held in my own name?
No, the shares are not held in the name of each investor. They are held globally on behalf of the fund, usually in the name of Hubbard Churcher Trust Management Limited.
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What is the current valuation of the Hubbard Management Fund portfolio?
We have been providing an update in our reports on the current value of the Hubbard Management Fund portfolio.
The graph below sets out the movements in the value of the Hubbard Management Funds portfolio and cash holdings.
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What is my own position in Hubbard Management Funds? How much will I get back?
The position of each investor in Hubbard Management Funds is unclear. If the fund has acted as a pool then each investor will get a pro-rata amount of what they have invested. Our current estimate is that on this basis investors would receive approximately 60% of their investment. This will alter as the portfolio value changes. If the fund is regarded as an individual portfolio then the returns are less certain. As we have noted in our reports, there are certain situations where there is inadequate shares and cash to match investor statements. We have undertaken a brief review of the positions of the investors on the assumption that each investor would get a share of each investment that is listed on their statements. It is concerning that some investors would suffer a large loss, whereas other investors would suffer only a very small loss. Because the variances in the returns will be considerably different for many investors, we will need to get court direction as to the best basis for allocation.
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Has Mr Hubbard pledged any of the assets that are owned for investor benefit?
Our initial investigations indicate that there are shares owned by Hubbard Management Funds that appear to have been mortgaged or offered as security for other loans. These are at risk. We referred to this matter in our third report and indicated that the total value of these assets pledged as security is approximately $7.5m. This estimate has reduced to $4.5 million at 31 January 2011 as we have resolved some issues and the value of the shares subject to claims has changed.
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Was there $2.5 million available to Aorangi prior to 30 June 2010?
We can confirm that at the time of our appointment $2.5 million was held in a solicitors trust account. Some days subsequent to our appointment these funds were transferred to our legal advisers trust account. Given we were appointed just a few days before the 30 June 2010 interest payment was due we did not have sufficient time to get a full understanding of the position of Aorangi and therefore it was prudent to place interest payments on hold. These funds were used, along with other funds received, to make the 3 cent capital repayment to investors in October 2010.
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Why has it been reported that the Statutory Managers have not worked closely with Mr Hubbard?
In the early days of the process we engaged regularly with Mr Hubbard. Mr Hubbard’s legal advisers then required all questions to be filtered through them which slowed the process enormously. Additionally, Mr Hubbard was required to focus on the plans for South Canterbury Finance and therefore we needed to provide him with “space” to focus on this matter. We have now ceased placing requests via Mr Hubbard’s solicitors. We now meet regularly with Mr Hubbard to get his input on a range of matters.
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Why were there no previous indications that Aorangi could not meet its interest obligations?
Mr Hubbard was able to mortgage his assets to raise funds to pay investors fully. At the time of our appointment there were a number of mortgage applications with solicitor nominee companies and banks. We are aware Mr Hubbard was borrowing personally from those he had previously supported to meet Aorangi interest payments. We have previously commented on the mismatch in funding and borrowings. The recent September and December quarter receipts have highlighted this as noted in our fourth and sixth reports. With such a mismatch an investor wishing to withdraw funds may experience delays. We have sighted correspondence where investors were not able to withdraw funds despite a number of requests.
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What assets does HMF hold and what has been sold?
We can not generally disclose this information without running the risk of impacting the value of the investments. Our priority is to maximise the value of the fund. We have already seen the effect of the market anticipating (incorrectly) the sale of certain assets. This included a drop in the market share price in anticipation of surplus stock available for sale and a number of heavily discounted offers. As previously stated the Statutory Managers are not intending to sell any investments unless it complements the process of good management maximising fund value for its investors and maintaining appropriate spread and weighting of investments. We are not liquidating the fund but we are actively managing the fund.
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Pike River Coal Limited (PRC) has been placed in receivership. What is HMFs share holding in PRC?
Hubbard Management Funds currently holds 1,100,000 shares in PRC. When Grant Thornton New Zealand became Statutory Managers back on 20 June 2010, the shareholding stood at 1,546,386, up from 1,398,445 shares held on 31 March 2010.
As part of our active management of the fund we have sold down the holding by approximately 30% as the share price peaked in October and early November 2010. This was in response to our advisers’ considered opinion that the fund had excessive exposure to the resource sector.
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When is there going to be a further payment of Aorangi capital?
We expect to make a payment by mid 2012, subject to the sale of assets identified by Mr Hubbard.
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If an investor with funds under statutory management were to ‘pass away’ what would happen to the money invested under that person’s name?
The investment would transfer to their Estate. The investment would remain in the name of the Estate within either Aorangi or HMF.
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What legal responsibility do the Statutory Managers have to pay out the money to an estate? If there are legal expenses, who pays?
An Estate would have the same status as all other investors. There would be no legal costs from the Statutory Managers’ solicitors associated with the transfer of an Aorangi or HMF investment to an Estate. The Statutory Managers would require evidence and direction from the Estate solicitors to make any transfers. This is likely to include a probated will. The process we would use is identical to the process used for the major share registries.
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What interest rate is used to calculate the interest on Aorangi investments?
Systems are in place to calculate interest but as yet, no interest has been calculated. The rate used will most likely relate to the banks on-call rate or the 90 day bank bill rate as this data is easily available retrospectively.
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When will interest payments commence?
We will repay capital first and will only calculate interest in the event of a surplus available to investors. Interest will not be calculated prior to the full repayment of capital, nor will we credit interest to any investors account earlier, as to do so may create taxable income for investors which may never be paid. Our current estimates which are set out in our sixth report, indicate it is unlikely any interest will be paid on funds invested in Aorangi.
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Do the Hubbards have access to funds to pay for legal advice?
We have no further comment to make other than our 10 December 2010 statement.
“We have been liaising, and continue to liaise, with Mr Hubbard's personal legal advisers. The Statutory Managers put a proposal for immediate legal support to Russell McVeagh during November 2010.
The Statutory Managers are confident that appropriate arrangements would be made for Mr Hubbard's personal legal representation should he face charges from the Serious Fraud Office.”
To make further comment at this time would not be appropriate as processes are being developed to handle the situation. You can, however, be assured that the Statutory Managers are working in the best interests of Mr Hubbard in this matter.
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Who is paying for Statutory Management - the Government or the investors?
Presently, only Statutory Managers costs for Hubbard Management Funds (HMF) are coming from investor funds. Before Statutory Management was imposed Mr Hubbard charged investors an annual management fee of 1.5% on monies invested. To cover Statutory Management costs, we obtained a Court Order to have the fund cover the costs. This was on the basis that Mr Hubbard's usual annual management fee of about $1.2m ($80m x 1.5%) was not charged in December 2010 as had been his past practice.
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When will the next Statutory Managers report come out?
The statutory managers have released two separate reports for Hubbard Management Funds and Aorangi Securities Limited Both reports will be placed on this website by 10 March 2011. The next report is expected to be issued by the end of June 2011.
I have written about returns for stocks on a general basis in the Long Term View series of posts and the Long VS Short series but in this series, Share Investor's Total Returns, I will be giving my actual returns for stocks in the Share Investor Portfolio for as long as I have held them.
