Special deal on"piggybank" interest rate

Bridgecorp gave a company alleged to be its "piggybank" a special deal on its interest rate, far below what the failed finance firm charged other borrowers, a court has heard. However, former Bridgecorp director Rod Petricevic - on trial for allegedly misleading investors - admitted in the High Court at Auckland today that the interest rate should have been set higher. Crown lawyer Warren Cathcart's cross-examination of Petricevic centred today on what is known as the "Barcroft transaction". The transaction involved the sale of loans from Bridgecorp to Barcroft Holdings on June 30, 2006 and represented Bridgecorp's single biggest exposure. The amount Barcroft owed Bridgecorp was originally around $80 million but grew to more than $100 million before the latter company collapsed, owing 14,500 investors $459 million. The Crown argues Bridgecorp used Barcroft as its "treasury or piggybank" and said the companies were closely linked through former director Gary Urwin. Despite the alleged ties, Barcroft was listed as an unrelated company in one of Bridgecorp's prospectus. According to Cathcart, Bridgecorp was only charging Barcroft interest of 3.74 per cent - far below its normal commercial rate of 12 per cent. "Where you aware that the interest rate being charged to Barcroft should have been 12 per cent?" Cathcart asked. "It was not something I became involved with," Petricevic replied. "Were you aware it should have been at 12 per cent?" Cathcart repeated. "Yes I think it should have been," Petricevic said. Petricevic also told the court that Bridgecorp did not obtain an independent expert opinion on whether Barcroft was a related party. In hindsight, Petricevic said the company should have sought advice. The trial of Petricevic and fellow directors Rob Roest and Peter Steigrad continues today. The trio face 10 Securities Act charges and are accused of misleading investors in Bridgecorp's prospectus and other offer documents. As well as the Securities Act counts, Petricevic and Roest face eight charges of knowingly making false statements in offer documents that Bridgecorp had never missed interest payments to investors, or repayments of principal.