Provident Capital in receivership: what risk lessons can be learnt?

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Non-conforming lender Provident Capital had receivers appointed this week after legal action by the trustees of its debenture fund.

Australian Executor Trustees (AET), Provident's debenture fund trustees, applied in mid-June for the appointment of a receiver due to a potential deficiency in Provident's net tangible assets.

AET feared that the group was putting investor equity at risk and was on the brink of insolvency.

Despite the appointment of PPB, Provident Capital maintains that it has the available net tangible assets to meet its obligations to investors and brokers.

The Federal Court ordered on Friday that receivers be appointed, though the presiding judge stayed the execution of the order, so that Provident had time to consider an appeal.

When contacted by Corporate Risk & insurance's sister title Australian Broker Online before the receivers were appointed, Provident Capital remained defiant.

"We have understood Australian Executor Trustees' principal concern was the potentially unequal treatment of debenture holders that may result if there is, in fact, a deficiency of net tangible assets," a statement from Provident Capital issued to Australian Broker read.

"While we have been of the firm belief that we would be able to meet all of our obligations to debenture holders as and when they fall due, and have provided AET with a comprehensive and considered proposal to protect debenture holders’ interests, AET continued to press for the appointment of a receiver."

So what went wrong? Questions have been asked about Provident Capital's appetite for credit risk.

News Limited reported, for example,  that Provident Capital had raised $131m from 5,270 debentures, and had loaned the majority to risky property developers, some of whom have failed to pay interest.

In addition insolvency firm PPB wrote a report in March, commissioned by AET, that alleged Provident Capital had breached its loan to value ratio, reported The Daily Telegraph.

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