A leading Queenstown businessman is fending off serious questions from liquidators over the collapse of his insurance company.
Liquidators of Queenstown-based Western Pacific Insurance are investigating “the performance of directors” – who include Millbrook co-founder and NZSki director Graham Smolenski – ascertaining whether there’s been any reckless trading, trading while insolvent or improper payment of preferred parties.
Liquidators say Western is $6 million short for payment of insurance claims and creditors are owed another $3.9m – they warn those figures are expected to worsen.
“Our investigation is to understand why it failed and [why] people lost money,” liquidator Simon Thorn tells Mountain Scene this week.
“A product of that is there may be reasons for action against certain parties which could lead to recoveries [of funds].”
Thorn adds the liquidators have a statutory duty to inform authorities of any company law breaches – the authorities then decide whether to prosecute.
Smolenski and brother-in-law Jeff McNally co-owned and directed Western, which they put into liquidation on April 4.
McNally and two of his companies were banned in 2002 by the Australian Securities & Investments Commission from selling policies on behalf of an unregistered insurance firm in the Marshall Islands. ASIC “acted to protect consumers”, the watchdog’s website says.
Smolenski denies reckless or insolvent trading regarding Western – “I watched that very carefully”.
He also denies “extraordinary payments…to related parties”.
Smolenski also hits back at the liquidators, claiming they have no insurance experience, and also knocks them for highlighting in their report last week that pint-size Western wrote policies with a risk profile of $10.2 billion.
Smolenski doesn’t dispute the $10.2 billion but says “it’s misleading…without proper context”.
“That $10.2 billion translates into about $10m of gross premium revenue,” Smolenski reckons – then commissions, reinsurance, overheads and a percentage of claims are deducted.
He also slams recent New Zealand media coverage of McNally’s earlier troubles in Australia.
“[The episode] was translated into something quite sinister that the facts just don’t bear out,” Smolenski says, “and it’s very regrettable.”
McNally “wasn’t banned from dealing in insurance,” Smolenski says, yet he’s been painted as “some sinister, shonky character”.
The Queenstowner also hits back at the liquidators for claiming “a significant lack of capital” caused Western’s crash.
“We had a very low capital base [but] were in the process of raising it.”
The low capital was “offset by a very strong reinsurance programme” which Smolenski calculates will cover “over 80 cents in the dollar” of claims, he says.
Despite Treasury saying “under-capitalisation” – rather than Christchurch earthquakes – sank Western, Smolenski continues to argue the Garden City catastrophes killed his company.
After the first quake, “[finances were] tight and we were having to get new capital”.
He and McNally injected $600,000 late last year but it wasn’t enough to withstand the second quake and they couldn’t raise outside capital.
Smolenski remains friends with McNally, who ran Western day-to-day: “In all my dealings with him, he’s been straight up and down.”
They were originally 50-50 shareholders but Smolenski sold 30 per cent to McNally in June 2008 for $550,000 cash.
Smolenski wanted out completely, he says, because their business model “was no longer workable”.
McNally, Smolenski’s brother-in-law, asked him to keep 20 per cent because McNally and the company couldn’t afford to pay out any more, Smolenski says.
McNally has returned to Australia “a broken man”, Smolenski adds.