Prime Minister John Key said South Canterbury Finance's receivership was a ''distressing and sad day'' for Mr Hubbard, but was due to some poor lending decisions and the impact of the global recession.

The Government today announced it will pay $1.6 billion to cover cash owed to depositors and stockholders by South Canterbury Finance and lend another $175 million to cover other debts, allowing the Crown to effectively have first call on the failed company's assets.

Mr Key said the Government's actions were necessary to allow sole control of the disposal of South Canterbury Finance's assets to minimise the losses from paying out on the deposit guarantee scheme.

That was the reason the Government had extended the payout to cover people not in the scheme, such as foreign investors, who might have had relatively small investments but been able to order fire sales of assets to recoup their losses.

"We've taken all the steps that I believe are appropriate to put ourselves in the strongest possible position to now effectively control, through the receivers, the disposal of the assets that were on South Canterbury Finance's balance sheet. That should, in our opinion, make sure that there is the minimum deterioration to other assets in the same sector and cause the least disruption in the marketplace.''

He said people who lost money in finance companies that went bust before the scheme came into effect at the end of 2008 might think it was unfair that SCF investors were covered, but the protection was needed to guard against economic meltdown in the financial sector while the recession continued.

"Without that deposit guarantee scheme, there would have been a run on these financial institutions, and they would have gone broke and that would have had a much more significant impact on the New Zealand economy.

"It's true that there are some people who've invested in other financial companies like Hanover, that weren't part of the deposit guarantee scheme, who've lost their money and yet they'll see others who are covered by South Canterbury Finance. I think there may be a degree of unfairness, from their perspective, of that, but we took the steps that I think were necessary and without that the New Zealand financial sector would have been in a significantly worse position two years ago, when we were in the midst of the global recession.''

$1.6b PAYOUT

The Government payout was announced today by Finance Minister Bill English, who said it was part of steps to swiftly repay investors, reduce the cost to taxpayers and ensure minimal disruption to the wider economy following the receivership of South Canterbury Finance.

"It's sad to see a longstanding New Zealand institution in this position. The Government, like everyone else involved, hoped South Canterbury would be able to work its way through its difficulties, but unfortunately we were advised today that it has been put in receivership," Mr English said.

"As a result of the receivership, the Government is moving swiftly to repay the money owed to South Canterbury depositors under the Crown Retail Deposit Guarantee. We are also taking other steps to reduce the cost to taxpayers and minimise disruption to the wider economy."

Mr English said the country's credit rating would not be affected by the payout. He also gave an assurance there would be no fire sale of assets as the Crown works with the company's receivers.

LABOUR BLAMES GOVERNMENT

Labour leader Phil Goff claimed the company's collapse was due to the Government's failure to revive the economy after the recession.

"It's a huge cost to the taxpayer. For the ordinary Kiwi that's struggling to save for him or herself, having to bail out the investors of South Canterbury will come as a huge burden.

"I think the fate of the company was really sealed by the failure of the Government to get proper economic recovery.

"The company had its own problems, but if they had occurred in the context of an economy that was recovering, other companies might have come in to help them out of the mess. As it is, the economy's going downhill.

"Four successive months of a decline in business confidence - hardly the environment where this company could have recovered.''

WHAT THE GOVERNMENT IS DOING

Steps the Government has taken include:

* The Crown has nominated the Trustee as the eligible creditor under the terms of the guarantee and will pay the Trustee $1.6 billion in full today. This will ensure depositors and stockholders are paid promptly without the need to apply to anyone.

* The Crown has made a loan to the receiver of $175 million, which allows it to repay all of South Canterbury Finance's prior ranking debts. Once this transaction is completed it will put the Crown in a position of control, as the first-ranked creditor in the receivership, so we can ensure an orderly and well-managed receivership process.

"Ensuring all depositors in South Canterbury Finance get their deposits back as quickly as possible will ensure a minimum of disruption to the economy," Mr English said.

"While this will incur an upfront cost, it will ultimately reduce the cost to taxpayers by about $100 million by ensuring the Crown is not liable for interest payments after the date of settlement.

"Furthermore, being in control of the receivership process takes the pressure off the receiver to quickly sell any assets.

"This ensures the Crown can get the best deal for taxpayers. Businesses that owe money, or are owned by South Canterbury, can continue to operate and there will be a minimum of disruption to both the local and national economy.

"The up front cost to the Crown of repaying South Canterbury's depositors is about $1.6 billion, but we would expect to recover the bulk of that as the receiver sells the assets over time.

"The final expected net cost to the Crown is already provided for in the Crown Accounts within the overall provision of about $900 million for all companies covered by the scheme," Mr English said.

Treasury today moved to reassure the public that taxpayers will get "the maximum value the receiver can recover from South Canterbury Finance" after confirming taxpayers were liable for $1.6 billion in investor deposits.

Acting Treasury Secretary Gabriel Makhlouf said the Crown was facilitating repayment of all of SCF's prior ranking debts along with all debt security holders in order to put itself first in line to be repaid by the receivers.

Have you been affected by SCF's collapse?

RESTRUCTURE AND RECAPITALISATION FAILED

SCF announced this morning that it has been unable to complete a recapitalisation and restructure and requested Trustees Executors to appoint a receiver in respect of the whole of its undertaking and assets.



Kerryn Downey and William Black of McGrathNicol were named as receivers. They will now take control and ownership of the group's assets.

South Canterbury Finance has more debts than assets and its shareholders will be the losers.

That is Allan and Jean Hubbard and the other 25 or so largely South Canterbury shareholders in Southbury Group, the main owner of SCF, chief executive Sandy Maier said at a news conference late this morning.

The losers also would be the several thousand preference shareholders who own 20 per cent of SCF.

"The equity holders today can't look forward to any returns."

The winners are all the holders of debt in SCF covered by the crown guarantee.

Mr Maier said some of those who traded in the SCF bonds, listed on the NZX, would have done well because they have been covered by the guarantee.

Bids for the company were between $100 million and $300m, each with different terms and conditions, but they were good enough to secure a deal, Mr Maier said.

Essentially the parties could not agree on price and the terms of a sale.

But Maier said there was substantial value in the ongoing business and efforts to secure its future would continue.

"This business hasn't disappeared in a puff of smoke."

Mr Maier said at the heart of SCF there is a sound business supporting many successful small and medium sized enterprises.

"That is the core business of SCF and a real contributor to the economic well being of that sector of the economy."

Media talk about a Government bailout he described as "fantasies" and said the board of SCF never approached the Government for that.

One of the three bidders at the end was a South East Asian trust who entered the bidding "late in the piece".

Another was a consortium of local and overseas investors of excellent quality but the price and terms were not good enough. The third was an offshore group with some investments in New Zealand.

There was a preferred bidder among those ''but it did not ring all the bells either".

South Island businessman George Kerr who led a group of Australian and New Zealand investors in the Torchlight fund would be repaid the $100m lent to SCF. Maier would not reveal the interest rate that group of lenders had been receiving.

The board started preparing for receivership yesterday. The company had only $7 million of cash left, the same amount when he first stepped into the job at SCF on December 23 last year when SCF was in a critical state.

The "wall" of maturities SCF had whittled back to $300 million, which would have been due in October, but will all be paid now under the guarantee.

Standard & Poor's Ratings agency lowered its local-currency issuer credit ratings on SCF to DD from CC/C. At the same time, it lowered the CC rating on SCF's bond issues to D.

SCALES NOT AFFECTED

Scales Corporation says it is not part of the receivership of South Canterbury Finance, its majority shareholder, and its day-to-day operations are not affected.

The company, founded in 1912, and in diverse business activities including shipping logistics, coolstores, pet food ingredients manufacture, industrial real estate as well as being the country’s biggest apple grower and exporter, recorded an unaudited $10.1 million pre-tax operating profit for the year ending June 30.

Chief executive Andy Borland says the company is forecasting a continuation of profitable trading in the year ahead. Scales Corporation has 554 shareholders. SCF owns 79.7 per cent.

HUBBARD'S FRUSTRATION

South Island millionaire Allan Hubbard is the major shareholder in SCF. He is under investigation by the Serious Fraud Office over other business interests, which are already under statutory management.

Mr Hubbard holds the view that if he had not been removed from the SCF board and himself placed in statutory management, he could have helped to save the business.

''It has been deeply frustrating and hurtful, over the last nine months, to have been sidelined by my fellow SCF directors, and subsequently straight-jacketed by the Government regulators, from working to save South Canterbury,'' he said a statement issued this morning.

A group of about 20 people gathered outside the SCF building on Sophia St in Timaru last night to show their support for the finance company and Mr Hubbard.

FORMER CHIEF EXECUTIVE 'GUTTED'

Former SCF chief executive Lachie McLeod said he was gutted by the demise of the finance company which has ''battled for the last two years'' with problem loans.

When asked about Mr Hubbard's role in the failure of the company, Mr McLeod said he did not want to go into detail about the former chairman.

Asked about Mr Hubbard's health and demands of having to be on regular kidney dialysis, Mr McLeod said he did not want to comment.

"It's been bloody hard work for everybody and it's not time to comment on any of that really."

Mr McLeod said he personally had worked as hard as anyone on SCF during the period he was with the company to ensure it was a going concern.

Asked about his performance as chief executive with SCF, Mr McLeod said: "That's a hard question as well, but I guess no-one bloody worked harder in the company than myself.

"That's certainly what did happen but we'll have to reflect on that as time goes on."

Mr McLeod left SCF about 10 months ago and reportedly since settled a $15 million loan from the company.

According to the Companies Office, Mr McLeod still owns a stake in SCF. He owns about 10 per cent of Southbury Group, the company that owns nearly 80 per cent of SCF.

Mr McLeod described the impact on staff and investors and wider community surrounding SCF as "bloody awful".



PROMPT PAYMENTS

"Depositors and stockholders do not need to make a claim to The Treasury because the (SCF) Trustee has made a claim on their behalf. All depositors and stockholders on South Canterbury Finance's register will be repaid," said Treasury's Mr Makhlouf.



"The Trustee has been nominated as the eligible creditor under the terms of the Guarantee and the Crown today paid the Trustee in full. The Treasury and the Trustee are cooperating to promptly repay all registered holders of South Canterbury Finance debt securities."



Mr Makhlouf said when an up-to-date register of debt security holders is available the Government and the Trustee will arrange prompt payment to everyone on the register.



"We expect an orderly and prompt payment to South Canterbury Finance depositors and stockholders."



A spokesman for Finance Minister Bill English will hold a press conference at 1pm to give the Government's response.



"The retail deposit guarantee has been triggered, and the Government is taking steps to swiftly repay depositors, minimise costs to taxpayers and ensure the minimum disruption to the wider economy," a spokesman said.



WIDER IMPACT

ANZ National Bank chief economist Cameron Bagrie said the way the receivership was handled would impact on economic confidence.



"I'm going to be looking for the impact on confidence. We have an economy that is growing, it's just not robust. Confidence can be very fickle.



"We've seen it trending down now for four months. These sort of developments, if handled well, could help restore a bit of confidence. If handled badly it will undermine confidence."



Mr Bagrie said fire sales of SCF assets would be a negative outcome.



"We are picking there will be a few more announcements. We need sensible heads to prevail and to work through this in an orderly and sensible fashion."



He said SCF's tentacles spread far and wide through many sectors of the economy, and there could be some investors who are not covered by the Government's retail deposit guarantee scheme.



Important announcements still to be made included what will happen to SCF's "good" and "bad" loans, he said.

Federated Farmers president Don Nicolson has urged farmers affected by SCF's receivership to get credible and trusted financial advice on how to deal with it.



The farmer advocate group is talking to banks to explore how funding vacuums left by the receivership in farmers' seasonal finance needs could be filled.



Mr Nicolson reminded the financial infrastructure that farming was a dynamic, 24/7 industry with a workforce, crops and animals involved.



"This is not the time for losing the resolve to support this vital part of the economy."



NERVOUS TIME

Canterbury Employers Chamber of Commerce chief executive Peter Townsend said the receivership has provided some certainty for the region but he was "dismayed" such a major financial institution was such a predicament, and suggested there could be more turbulence ahead for the finance sector.



"There could be some further issues ahead with respect to the finance industry generally, we wait to see if there is a flow on effect. It is not a good look and the sooner we get some outcomes the better," he said.



"But I am not underestimating the difficulties ahead for receivers in working their way through a very, very complex issue."



National MP Jo Goodhew, whose Rangitata electorate covers Timaru, said the failure of SCF would be felt across the region.



"It remains an anxious time for the people in my community. I think that many will take heart knowing that they've been reassured about the government guarantee, and that will certainly assist a large number of people.



"I think now's a time for patience, just to see how the details of what will happen take shape, though it's hard to be patient when you're anxious.''



"It would be fair to say that it doesn't matter where I go in my community, everyone is talking about, and is concerned about, the situation.''



She would not comment on what action she thought the Government should take, saying that was a matter for Mr English.

- by Martin Kay, Marta Steeman, Andrea Fox, Tracy Watkins, Vernon Small, Tim Hunter and Alan Wood.