ADVISORY TO MEMBERS
NZFCU is in breach of its undertakings under the Trust Deed to lodge audited financial statements for the year to 30 June 2020 and to maintain a capital ratio in excess of 10% as at 28 February 2021. Specifically, NZFCU was required to complete its audited financial statements for the year ended 30 June 2020 by 31 December 2020 and lodge those statements on the Disclose Register (sections 460, 461D and 461H of the Financial Markets Conduct Act 2013 and section 127(3)(b) of the Friendly Societies and Credit Unions Act 1982). However, NZFCU has failed to comply with these requirements and as a result has breached clause 7.1(f) of the Trust Deed.
On 5 January 2021 the Supervisor provided NZFCU with notice pursuant to the Trust Deed requiring it to remedy the breach by completing, auditing and lodging its audited financial statements by 26 January 2021.
NZFCU was unable to comply with that notice and on 29 January was advised by the Supervisor that an Event of Default had occurred under Clause 10.1(c) of the Trust Deed. As such, the Supervisor has the power to appoint a Receiver to NZFCU at any time after an Event of Default has occurred.
In February 2021 NZFCU entered into a Heads of Agreement with Credit Union Baywide (NZCBU) for the purpose of investigating the possibility of a transfer of engagements from NZFCU to NZCUB (TOE). This provided the parties with an opportunity to conduct due diligence with a view to implementing a TOE. The Boards of both NZFCU and NZCUB have agreed in principal to a TOE from NZFCU to NZCUB.
As at the date of this replacement PDS
- the audited financial statements remain outstanding, therefore NZFCU remains in an Event of Review.
- NZFCU is working with the Auditor, the Supervisor, and, with assistance from NZCUB to finalise the financial statements and lodge them on the Disclose Register;
- the Supervisor has not appointed a Receiver, however they are monitoring both the progress of the audited financial statements, and, the TOE between NZFCU and NZCUB;
- NZFCU and NZCUB have entered into a signed Transfer Agreement for the purpose of transferring the business of NZFCU to NZCUB. NZFCU will be arranging a special general meeting of members in May to seek approval for the TOE;
- The board of NZFCU has decided that the credit union is not a going concern and it is therefore required to prepare accounts on a realisation basis. This means it will need to include provisioning for the potential costs associated with the TOE (costs associated with another Audit, Accountant fees, legal fees, and asset manipulation costs) in its financial accounts as at 30 June 2020 and going forward;
- provisioning of an additional $169,097.00 has been added to the February 2021 financials resulting in an increased loss, and has also affected the Minimum capital ratio of 10% as prescribed in clause 7.2 of the Trust Deed;
- NZFCU is required to maintain a Capital Ratio of not less than 10%. Due to the additional provisioning of costs associated with a TOE, and the increased compliance costs pertaining to the current Event of Review NZFCU’s capital ratio sits at 9.11% for the month of February 2021. This is a breach of the Trust Deed meaning NZFCU is now in breach of two separate and distinct requirements (under both the Trust Deed and current legislation);
- it is expected that NZFCU will continue to be in breach of the capital ratio minimum up until the transfer of engagements to NZCUB is concluded or completed;
- The Supervisor has indicated and NZFCU anticipates that the secondary breach pertaining to the capital ratio will result in a further Event of Review followed by a further Event of Default
- NZFCU will not be recruiting new members from 20 April 2021.