Gippsland directors earned favoured returns

The trustee of regional Victorian non-bank lender Gippsland Secured Investments hopes that receivers will be able to make an "ultimate return to note holders of between 80 cents and 90 cents in the dollar."

In their first report to note-holders, The Trust Company and Ernst & Young said this estimate was "based on a sale of GSI's loan book being achieved" and costs being managed in line with forecasts.

Gippsland, which has around A$144 million in liabilities, ceased to accept new investments in early July. It later suspended further redemptions of at-call and term investments.

The Federal Court appointed E&Y as receivers last month in the face of strenuous objections from GSI and amid efforts to recapitalise the firm.

The report highlights the privileged position of directors and employees. Directors obtained close to A$5 million in loans at discounted interest rates.

Some directors and staff were also paid much higher rates on investments, of 5.2 per cent compared with an average interest rate of 1.8 per cent for "at call" notes.

The report also shows that the final prospectus for GSI understated the proportion of loans used for property development. This was said to be 41 per cent, but the real proportion was 63 per cent.