South Canterbury Finance has asked for the company to be placed in receivership.
It announced today that it has been unable to complete a "recapitalisation and restructure".
As a result, the company would have been unable to certify to its trustees in accordance with the terms of its debenture trust deed.
Accordingly, South Canterbury Finance Limited has requested Trustees Executors to appoint a receiver in respect of the whole of its undertaking and assets, and Trustees Executors Limited has done so.
SCF was burning the midnight oil last night to thrash out a life-saving deal to avoid its collapse – an event which would ripple through the rest of the economy.
Late yesterday afternoon, SCF chief executive Sandy Maier said "there are three parties that consider themselves in the race" to inject cash and save the company.
The company is due to make the announcement to the New Zealand stock exchange at about 9.30am, which Mr Maier told Radio New Zealand "will contain some surprises”.
Speaking to Morning Report, he said it should be seen as a progress report, not as the end of the process.
Mr Maier said the solution would have "both winners and losers" and he expected "some angst" in the response to the announcement.
"There has a wide range of problems that we've been putting right," Mr Maier told the programme.
He said there was "a toxic section to South Canterbury". "We have had our arms round the problems now for quite some time."
The Government has also been standing by to strike a deal should the company fail to find its own saviour.
Prime Minister John Key confirmed the cost to the taxpayer could be as much as $700 million under the Government's deposit guarantee scheme if SCF falls over.
Finance Minister Bill English has cancelled a trip to Hong Kong and Singapore to deal with any fallout.
The finance company owes more than 35,000 depositors and debenture holders about $1.7 billion, with $1.5b of that covered by the Government's guarantee.
However, the latest assessment is that its bad loans would leave a shortfall of about $700m owed to depositors and investors – a cost that would have to be picked up by taxpayers.
Key confirmed yesterday that taxpayers were also liable for interest on deposits guaranteed under the scheme, which in SCF's case is as high as 8.5 per cent.
He also confirmed statutory management of SCF may be an option.
However, he also said: "It's important to note SCF is still operating and we don't want to prejudice any commercial discussions that may be taking place with private parties."
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.
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.
Key confirmed South Canterbury's books were in a similar state to those of Hubbard's other interests, with poor back-office systems and incomplete records.
The Government has refused to step in to save other failing finance companies but the prospect of the South Island giant failing is causing jitters over the impact on the wider economy.
One option may be for the Government to separate out the bad loans and accept its liability to depositors up front, rather than wait for the company to fail before it triggers the guarantee as a backstop.
That could lessen the risk of a forced sale of assets – including South Island businesses, farms and other property holdings – and the potential knock-on effect.
NERVOUS TIME
Timaru Mayor Janie Annear told Radio New Zealand this morning the town had "emotional connection" with the Hubbards because of the family's huge generosity and support for emerging businesses since the 1930s. "But we are also intricately linked with them on all sorts of business fronts as well."
"Our community is very nervous about this situation."
Ms Annear said it was impacting not only on the Timaru community, but the South Island and New Zealand as well.
She said the question that needed to be asked was whether New Zealand's fragile economic recovery was going to be affected by the collapse of one of the country's largest corporates.
"Let's hope that in fact is not going to be the case this morning."
Meanwhile Timaru Retail Association chairman Tim Small said the problem was that some of the banks had been "a little less than forthcoming" recently with finance for businesses.
South Canterbury Finance had made a big difference to many of the businesses in the region, he said.
"Plus some of the interest rates were very attractive," Mr Small said.
He denied that the problems had occurred because businesses were getting cheap money and SCF were paying more than they should have been.
Mr Small said more than 50 per cent of the retail association's members either owed money or were owed money by SCF.
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