A substantial shortfall in the premium account of Auckland-based broker Herbert Insurance was found and insurers notified in the months leading up to the company’s failure, a report by the receivers has found.

Michael Stiassny and Brendon Gibson of KordaMentha say insurers were told the shortfall would be addressed on the sale of the business.

In their first receivers’ report, they say a potential buyer, previously named as New Zealand broker Rothbury, was doing due diligence on the company in the months leading up to the liquidation and picked up the shortfall.

The sale was abandoned, which led to the company being placed into liquidation on March 4. 

A breakdown in discussions between the liquidator and the insurers led to the receivers being appointed to both Herbert Insurance and its premium funding arm, Herbert Securities.

The liquidators say that for both companies, “the integrity of the company’s books and records is questionable due to irregularities around the accuracy of information”.

The Serious Fraud Office (SFO) is investigating alleged irregularities in the premium funding account. The SFO has wide-ranging powers to investigate major corporate crime, and the receivers say they have been served with a notice to produce documents.

Herbert’s 4500-strong client book and its retail and wholesale arms were bought by Aon. The receivers say because the value is currently unknown, the value of the retained client base will be assessed 12 months after settlement, with consideration payable after March next year.

“It is unlikely that there will be funds available to pay to the company’s preferential creditors” they said.

The ASB Bank is owed $NZ780,000 ($580,200), the Inland Revenue Department $NZ314,000 ($233,500) and employees $NZ78,000 ($58,200). Unsecured creditors are owed around $NZ200,000 ($148,700).

The receivers have found an intercompany loan from Herbert’s Australian branch, but say although this is recorded in the balance sheet the Australian operation has denied any liability.

The receivers say Herbert’s key asset was its customer base, and when the liquidator sacked the staff “it was apparent that clients would necessarily have started contacting other brokers, and simultaneously that ex-staff members and competitor brokers were contacting clients”.

Herbert Insurance’s associate, Herbert Securities, provided premium funding to around 500 clients. Its balance sheet records a premium funding book of $NZ780,000 ($580,200) as its only asset. The receivers say they are assessing the value of the book, “which we suspect is substantially lower than book value”.

The ASB Bank is owed $NZ269,000 ($200,122) by Herbert Securities and the receivers say it may get something back.