The Commission has reached a settlement with five companies that concludes its investigation into the failed investment product Credit SaILS. As part of the settlement, the companies have agreed to create a settlement fund of $60 million to be distributed to investors who lost money when Credit SaILS failed in 2008.
The companies involved in establishing the fund were Forsyth Barr Limited, Forsyth Barr Group Limited, Credit Agricole Corporate and Investment Bank, Credit Sail Limited and Calyon Hong Kong Limited.
Credit SaILS were sophisticated debt securities marketed and sold to the New Zealand public in 2006 with the prospect of 8.5% interest income and capital protection. $91.5 million was raised through the offer. Credit SaILS failed in 2008 and the notes are now virtually worthless. On the information available, the Commission estimates the total loss for those eligible for a share of the settlement fund is around $70 million.
The Credit SaILS Settlement Agreement can be found in our Enforcement Actions Register.
Public Trust has been apointed as the Trustee to distribute the settlement fund to eligible investors. For more information about the distribution of the settlement fund see Question 15 below and visit the Credit SaILS page on Public Trust's website.
Credit SaILS Investigation Closure Report - March 2013
The Credit SaILS Investigation Closure Report (PDF) summarises the evidence uncovered in the Commission's investigation of the five companies associated with the marketing and sale of the Credit SaILS product to investors.
Responses to the Commission's investigation closure report:
- Credit Agricole Corporate and Investment Bank, Credit Sail Limited, and Calyon Hong Kong Limited response to the Commerce Commission investigation closure report (PDF)
- Forsyth Barr response to the Commerce Commission investigation closure report (PDF)
Questions and answers for investors - updated March 2013
This Q and A asks and answers the following questions:
- What is this settlement about?
- Who has the Commerce Commission settled with?
- What are Credit SaILS?
- How did Credit SaILS fail?
- What has been agreed between the Companies and the Commerce Commission?
- Where is the money coming from?
- What action is the Financial Markets Authority taking?
- Why did the Commerce Commission agree to reach a settlement with the Companies rather than go to court?
- Will this settlement affect the Credit SaILS maturity payment? (Updated in February 2013)
- Who is eligible for a payment?
- Who is not eligible for a payment?
- Why is the date of 1 November 2008 relevant to eligibility?
- How much will I receive if I accept the offer? (Updated in February 2013)
- How will the payments be calculated? (Updated in February 2013)
- How will the settlement fund be distributed? (Updated in February 2013)
- How long do I have to accept the settlement offer? (Updated in March 2013)
- If I accept the offer, how long will it be before I receive payment? (Updated in March 2013)
- I sold all my notes for 85 cents per note or more. But I have still lost some of my original capital invested. Am I eligible under the settlement agreement?
- Why are investors who sold their Credit SaILS for more than 85 cents per note excluded from the settlement fund?
- I sold some of my Credit SaILS notes but still hold some notes now. Am I eligible to receive an offer of payment from the settlement fund?
- Will all eligible investors get the same payment? (Updated in February 2013)
- I am an eligible investor. When will I receive an offer from the settlement fund?
- What happens if I don’t receive an offer but I believe I am an eligible investor?
- I am an eligible investor but I hold my notes through a custodial company. Will I receive a letter of offer? (Updated in March 2013)
- What should I do if I am not happy with the payment I am asked to accept?
- What happens if I don’t accept the offer?
- Does someone else get the money if I don’t accept?
- Can I accept the offer and then take private action against the Companies (or take private action and then accept the offer)? (Updated in February 2013)
- Will the payment include interest on my losses?
- Will the payment include refunding any brokers fees or commissions I paid on the purchase of the Credit SaILS notes?
- Will I have to pay tax on the settlement payment under the settlement offer?
The Commerce Commission has investigated alleged contraventions of the Fair Trading Act 1986 (the Act) in relation to the marketing, promotion and sale of Credit SaILS. The Act prohibits misleading and deceptive conduct in trade.
The Commission has completed its investigation and concluded that, in its view, there is a sufficient foundation for it to commence legal proceedings alleging breaches of the Act. In particular, the Commission considers that:
- representations that Credit SaILS were “capital protected”, and that any investor risk related to interest payments and not capital, were both misleading and deceptive;
- Credit SaILS were marketed to the average investor;
- Credit SaILS were highly complex and unsuitable for the average investor; and
- the companies involved in the sale and marketing of Credit SaILS knew or ought to have known that Credit SaILS were unsuitable for the average investor.
The Commission has reached a settlement with the following companies (the Companies).
- Crédit Agricole Corporate and Investment Bank, a subsidiary of Crédit Agricole SA, a French retail banking group. It is the current name of CALYON Corporate and Investment Bank which was named on the Credit SaILS Offer Documents as the arranger of the Credit SaILS investment product.
- Forsyth Barr Limited, a New Zealand based provider of financial services. Forsyth Barr was named on the Credit SaILS Offer Documents as the lead manager and organising participant for the offer.
- Forsyth Barr Group Limited, a company which owns Forsyth Barr Limited. Forsyth Barr Group Limited was named on the Credit SaILS Offer Documents as the underwriter to the Credit SaILS offer.
- Credit Sail Limited, a company incorporated in the Cayman Islands and maintained as a special purpose vehicle for the Credit SaILS investment. Credit SaILS Limited was named on the Credit SaILS Offer Documents as the issuer for the Credit SaILS offer.
- Calyon Hong Kong Limited, a company incorporated in Hong Kong and a subsidiary of Crédit Agricole SA. Calyon Hong Kong Limited was named on the Credit SaILS Offer Documents as promoter for the Credit SaILS offer.
The Companies deny that they have breached the Fair Trading Act and do not agree with the Commission’s views which have not been tested in court.
Credit SaILS (or Credit Saleable Index Linked Securities) were issued by Credit Sail Limited on 15 June 2006 and listed on the New Zealand Stock Exchange.
Credit SalLS were marketed as secured fixed interest New Zealand Dollar denominated debt securities on the following basis:
- Credit SalLS were issued on 15 June 2006 and are scheduled to mature on 22 December 2012
- the issue price was $1 per note
- the minimum investment was $5,000
- the offer was available to members of the public, and
- 91.5 million Credit SaILS were issued.
Credit SaILS were marketed through:
- the Credit SalLS lnvestment Statement and Combined lnvestment Statement and Prospectus for Credit SalLS
- other documents prepared by the Companies for the purpose of marketing Credit SaILS, and
- representations made by investment advisors acting on behalf of Forsyth Barr and other New Zealand-based investment advisory firms.
More than 3,000 investors purchased Credit SaILS.
Credit SaILS were a complex debt security involving an investment in separate securities called Momentum Notes, which acted as the collateral for Credit SaILS. The performance of Credit SaILS was therefore dependent on the performance of the Momentum Notes.
Between 15 September 2008 and 31 March 2009 six individual reference entities named in the Momentum Reference Portfolio, a portfolio upon which repayment of the Credit SaILS principal amount was dependent, experienced adverse credit events.
The total losses from these credit events resulted in the full amount of the Momentum Notes investment being lost, meaning that none of the principal amount of Credit SaILS would be returned to investors upon maturity. On 12 May 2009 Credit Sail Limited issued a public announcement that Credit SaILS would be redeemed at zero, plus the holder’s pro rata share of the residual monies, amounting at the date of the announcement to $11.66 plus interest for every 1,000 Credit SaILS held.
The Companies have agreed to pay NZ$60 million into a settlement fund to be distributed to eligible investors who accept the Companies’ settlement offer.
In consideration for the Companies establishing the settlement fund and making settlement offers to eligible investors, the Commission has agreed to close its investigation and take no further action in respect of Credit SaILS.
The settlement agreement with the companies which sets out the terms of the settlement and the process for payment to eligible investors can be viewed on our Enforcement Actions Register.
The Commission does not know which of the Companies is contributing what amount to the settlement fund. Those details are confidential to the Companies.
The Financial Markets Authority (FMA) is the regulator tasked with overseeing New Zealand’s securities markets. When Credit SaILS came to the Commerce Commission’s attention it met with the Securities Commission, the predecessor to the FMA, to discuss the best way to investigate this matter. At that time, the Securities Commission was dealing with a number of significant investigations arising out of the failure of a string of high profile finance companies. The Commission and the Securities Commission agreed that the Commerce Commission should lead the investigation into Credit SaILS while keeping the Securities Commission informed. The FMA, when it was established, agreed with this course of action, and has liaised with the Commission during its investigation. The FMA is aware of this settlement. The FMA has entered into its own settlement with the Companies, on the basis that the Commission settlement resolves FMA’s inquiries, in terms of its own enforcement policy, and will not be taking any further action in relation to Credit SaILS.
8. Why did the Commerce Commission agree to reach a settlement with the Companies rather than go to court?
The Commission’s objective has been to return as much money to investors as it is able to, either through Court proceedings or settlement.
The Commission believes that the offer by the Companies to establish a $60 million settlement fund is an excellent outcome for investors. While the Commission could have issued proceedings, those proceedings would have been lengthy, costly and with no absolute certainty of a successful outcome.
The Companies disagreed with the Commission’s views as to whether they breached the Act and are likely to have defended any claim brought by the Commission.
The Commission made the decision to enter into this settlement arrangement with the Companies to ensure that the investors who lost money in Credit SaILS (many of whom are elderly) have the certainty of recouping a substantial proportion of their losses now, rather than having to wait for the case to be resolved through the Courts.
Credit SaILS matured on 22 December 2012. Under the terms of Credit SaILS, current holders will have received a payment for the residual value of their notes following maturity. This settlement will not affect that payment.
The settlement relates to investors' capital losses. If the maturity payment was capital, it would have been taken into account in determining investors' losses. It is now clear that the payments made on maturity were in respect of the residual income derived from the Credit SaILS investment strategy only and did not represent a capital repayment. As such tax was deducted from those maturity payments.
The payments to eligible investors under the settlement are and were intended to be in respect of the capital invested only and do not take account of income derived from Credit SaILS. Therefore the maturity payments will not be taken into account in arriving at the settlement amounts to be offered to eligible investors.
This decision does not affect the overall amount of capital being returned to investors which will still be approximately 85% of capital invested. For more information see question 14 'How will the payments be calculated?'.
You are eligible for a payment under this settlement if:
- as at 12 December 2012 (the date of the settlement agreement), you held Credit SaILS that were purchased at any time before 1 November 2008
- or you purchased Credit SaILS at any time before 1 November 2008 and have since sold those Credit SaILS for less than 85 cents per note
- or you are a successor in title, whether by way of bequest, gift, or operation of law (eg, if you received Credit SaILS under a will or a matrimonial property settlement), of any other person or entity who would otherwise be eligible.
You are not eligible if you purchased your Credit SaILS notes on or after 1 November 2008 or if you have sold all of your notes for 85 cents per note or more.
Through this settlement, the Commission has sought to recover the loss suffered by those investors who relied on allegedly misleading representations made by the Companies. By 1 November 2008, Credit SaILS had been downgraded to a credit rating of CCC and the value of Credit SaILS on the secondary market had reduced significantly below par value. It is our view that those who purchased on the secondary market on or after 1 November 2008 are likely to have been aware that Credit SaILS was not capital protected and that there was significant risk in an investment in Credit SaILS.
The Commission and the companies are currently finalising the calculation of payments that each eligible investor will receive, although we expect investors to receive a payment to return them to approximately 85% of their initial investment, taking account of all capital returns received including sales proceeds.
The settlement is intended to provide that all eligible investors who accept the settlement offer will receive the same percentage return on their investment in Credit SaILS. In arriving at the percentage return to be received by eligible investors, we will take account of all capital returns received by the investor (including sales proceeds). The maturity payment made to investors in December 2012 will not affect your entitlement to a payment under the settlement. The maturity payment has been treated as income rather than as a return of capital invested.
The formulae for calculating payments to investors are set out in Schedule A of the settlement agreement. Examples of how payments to investors will be calculated are set out below. Where the examples previously took account of maturity payments in the calculations, these have been amended to reflect that the maturity payments have been treated as income, not capital.
For the purposes of the examples that follow, we have estimated that the payment to eligible investors will be sufficient to return them to 85% of their initial investment. Please note: the final return to investors has not yet been set and may be higher or lower than 85%.
Susan purchased 10,000 notes for $10,000 during the Initial Public Offer and has received $200 on maturity (and no other capital payments over the life of Credit SaILS).
Under this payment method, Susan will receive an extra $8,500 to bring her up to a percentage return of 85% of her initial investment of $10,000.
The payment to Susan is calculated as follows (using the individual payment formula set out in Schedule A of the settlement agreement):
($10,000 x 85%) = $8,500
Richard purchased 10,000 notes for $8,000 on the secondary market before 1 November 2008 and has received $200 on maturity (and no other capital payments over the life of Credit SaILS).
Under this payment method, Richard will receive $6,800 to bring him up to a percentage return of 85% of his initial investment of $10,000
The payment to Richard is calculated as follows (using the individual payment formula set out in Schedule A of the settlement agreement):
($8,000 x 85%) = $6,800
Jenny purchased 10,000 notes for $10,100 on the secondary market before 1 November 2008 and has received $200 on maturity (and no other capital payments over the life of Credit SaILS).
Under this payment method, Jenny will receive an extra $8,585 to bring her up to a percentage return of 85% of her initial investment of $10,000.
The payment to Jenny is calculated as follows (using the individual payment formula set out in Schedule A of the settlement agreement):
($10,100 x 85%) = $8,585
Public Trust has been appointed as the Trustee to distribute the settlement fund to eligible investors.
Public Trust wrote to investors on 17 January 2013 to notify each investor of the details of the settlement, the grounds of eligibility to receive an offer of payment, and the future steps to be taken by or on behalf of the Companies under the settlement agreement. You can find a copy of the letter to investors and further information on Public Trust's website.
Public Trust will again write to investors in March 2013. Eligible investors will be advised of the amount of a payment to be offered to them, and that if they accept the offer of payment, it will be in full and final settlement of any legal claims they may have against any party, in respect of their Credit SaILS investment.
Ineligible investors will be advised why they are not eligible to receive a payment.
The offer to eligible investors to accept a payment from the settlement fund will be open until 20 November 2013. All eligible investors who wish to accept the offer must do so by that date or they will miss out.
All eligible investors who accept the settlement offer will be required to provide bank account details to Public Trust (this information will not be shared with any person, including the Companies or the Commission). Public Trust will then make payment into that bank account.
The settlement fund will now be open until 20 November 2013 as there has been a slight delay in processing the letters of eligibility and individual offers to investors.
It is intended that individualised offers to eligible investors will be made from March 2013. Depending on when the Trustee (Public Trust) receives your acceptance of the offer, then you should receive your payment not later than the 20th day of the following month.
18. I sold all my Credit SaILS for 85 cents or more. But I have still lost some of my original capital invested. Am I eligible under the settlement agreement?
No. As you have sold all of your Credit SaILS for more than 85 cents, you will not be eligible for a further payment under this settlement.
19. Why are investors who sold their Credit SaILS for more than 85 cents per note excluded from the settlement fund?
The $60 million settlement fund is not sufficient to restore all investor losses. Instead, we estimate that it will be sufficient to return all eligible investors to approximately 85% of their initial investment in Credit SaILS.
As the par value of Credit SaILS was $1 per note, investors who have sold all of their Credit SaILS for 85 cents or more have already received 85% or more of their initial investment in Credit SaILS. Additionally, they have had the use of their funds since they sold their Credit SaILS.
20. I sold some of my Credit SaILS but still hold some notes now. Am I eligible to receive an offer of payment from the settlement fund?
Yes, provided the notes you still hold were purchased before 1 November 2008. You will be offered a payment sufficient to return you to 85% of your initial investment in Credit SaILS, calculated using the method set out in Schedule A to the settlement agreement.
No. The settlement is intended to provide that all eligible investors who accept the settlement offer will receive the same percentage return on their investment in Credit SaILS. Payments will be based on each investor’s individual circumstances, including the price they paid for Credit SaILS and the amount of any return they have received on those Credit SaILS from sales.
Your individualised offer should be mailed to you in March 2013.
You should contact the Trustee (Public Trust) if you didn’t receive an initial mailout letter or individualised offer, to ascertain why you have not received an offer. Contact details for Public Trust are email: firstname.lastname@example.org or phone: 0800 003 018.
24. I am an eligible investor but I hold my notes through a custodial company. Will I receive a letter of offer? (Updated in March 2013)
The settlement offer letters are being sent to all eligible investors whose details appear on the Credit SaILS Register or to those investors who were on the Register but no longer hold notes but are eligible under the settlement. Where the notes are held by a custodian on behalf of the eligible investor, the custodian will receive the letters of eligibility and relevant settlement offers, and then communicate that information to their client investors.
You do not have to accept this offer. If you are not happy with the amount offered then you should take independent legal advice and/or financial advice before you decide whether to accept the offer.
If you don’t accept the offer, you remain entitled to pursue your own legal remedies against the Companies. It is unlikely that you will be able to use the fact of this settlement as evidence against the Companies in any proceedings you may bring.
The money to pay each amount offered is ‘earmarked’ for the eligible investor. But if the investor says ‘no’ and declines the offer, the Companies will keep that amount.
28. Can I accept the offer and then take private action against the Companies (or take private action and the accept the offer)? (Updated in February 2013)
No. As a condition of offering the payment to you, the Companies will require that any payment must be accepted in full and final settlement of any legal claim you may have in respect of your Credit SaILS investment.
This means that if you accept the offer from the settlement fund, you will not be able to make any legal claim or take any legal action against any of the Companies or any other party in respect of your holding in Credit SaILS. This will include financial advisers, trustees and any employees of any of the Companies.
More information about the terms upon which any offer for payment is to be made to eligible investors will be provided by the Companies through the Trustee (Public Trust) when the offers are ready to be made.
The Commission strongly recommends that investors take independent legal and/or financial advice before deciding whether or not to accept the offer. All investors (and their advisers) need to think very carefully about the terms of the offer, and what will be in the investors' own best interests when they make a decision as to whether to accept payment being offered. There is no possibility under the settlement for investors to both take proceedings and accept the offer.
No. The payments from the settlement fund do not include interest on the capital that was lost due to the failure of Credit SaILS.
30. Will the payment include a refund for any broker’s fees or commissions I paid on the purchase of the Credit SaILS notes?
No. The payments do not include any refund for fees or commission paid on the purchase of the notes.
We understand that most investors will not have to pay tax on any payment they accept. However, if you claimed a tax deduction for a loss on Credit SaILS then you may have a tax liability. You should take advice from your accountant or tax expert.