LDC Finance collapse may be undeserved

The collapse of Nelson finance company LDC may be undeserved, a sharebroker says. The company became the latest victim of the liquidity crisis on Tuesday, placing itself in the hands of receivers when it found itself unable to pay out on existing investments.

An investment analyst at Milford Asset Management, Brian Gaynor, says LDC, the fourth finance company to collapse in a fortnight, is probably a victim of circumstance rather than bad management. He says LDC looks to be well organised and the investor run on cash, which caused the collapse, was difficult to foresee. LDC owes $19.3 million to almost 1000 investors. It is the eighth finance company to fail in 16 months. It says it expects to pay back its 995 investors in full but it will take time.

The company announced on Tuesay morning it had placed itself in the hands of receivers as it could not meet the demand for repayments on existing investments and was unable to secure new funds. PricewaterhouseCoopers receiver Malcolm Wallis says company finance assets are worth $23.8 million. Mr Hollis says the collapse of other finance companies has seen nervous investors withdraw money from its on-call deposits. He also says the latest collapse may not be the last.

Mr Wallis says the average loan size for each investor is estimated to be between $5,000 and $15,000. LDC Finance was established in 2004 from the ashes of LDC Investments, which breached securities law after it raised money without a registered prospectus and without a trustee. On Thursday, Five Star Consumer Finance became the third company to go into receivership in the past fortnight. Others were Property Finance Group and Nathans Finance.

On 24 August, PFG asked for its shares to be suspended from trading on the stock exchange due to a lack of cash to pay debts and said that it was unlikely to be able to honour its debts in the short term. PFG holds about $80m in debenture stock and loans of approximately $630m. Nathans Finance was placed in receivership on 13 August after the Registrar of Companies declared it to be at risk.

Its collapse followed that of Bridgecorp last month, which was placed in receivership in July, owing $500m to 18,000 investors. Three other finance companies collapsed last year: Western Bay Finance, National Finance 2000 and Provincial Finance. The total owed to investors by the eight companies amounts to $1.14 billion.