A suspicious transaction, irregular accounting, financial challenges, and at-risk investors.

Documents revealing why the Government took the unusual step of placing the troubled property empire Du Val under statutory management have been publicly released.

The Cabinet papers reveal regulator concerns about the risks posed to investors and creditors if Du Val and its multiple entities had been allowed to continue operating.

On August 2, police officers and agents from the Financial Markets Authority (FMA) raided the rented Remuera mansion of Du Val owners Kenyon and Charlotte Clarke. It came after years of warnings about some of the conduct of the flashy property company.

Large parts of the letter the FMA’s legal team sent to Commerce Minister Andrew Bayly and the associated Cabinet paper are redacted.

In its August 17 letter, officials laid out recommendations that the company and its various entities be placed under statutory management.

The FMA raised a range of concerns in the letter.

Du Val’s Mortgage Fund, which people deemed wholesale investors had put substantial sums of money into, was experiencing “financial challenges”. It had lent out all investor money and stopped distributions to investors in 2022. Investors were then offered the opportunity to swap their debt for equity.

Meanwhile, Du Val’s Build to Rent Fund had defaulted on a loan worth more than $17 million from China Construction Bank and a receiver had been appointed.

In April, Du Val had renamed many of its subsidiaries – dropping the “Du Val” and replacing it with “random names like Orange Pineapple Ltd, Flipping the Lids Ltd and Woodle Ltd”. Some of the entities had been placed in liquidation or were under threat of being so.

In a rare move, the Government has stepped in to put the group into statutory management. (Source: 1News)

Accounting giant PwC was appointed as receivers in early August.

Last week, the firm revealed Du Val owes creditors $237 million — which includes a major lender, the IRD, subcontractors, ACC, Auckland Council, and about 120 investors.

PwC previously told the FMA there was “evidence of irregular accounting entries that have created assets that may not be legitimate” and there were concerns about the Mortgage and Opportunities Funds Du Val ran.

They were also particularly concerned about a number of valuable development sites across Auckland, with multiple sale agreements in place.

The FMA concluded statutory management would provide certainty to all parties, and allow the affairs of Du Val to be dealt with in a more “orderly and expeditious” way.

Du Val was placed in interim liquidation by the High Court earlier this month. (Source: 1News)

Some investors have expressed concern to 1News about the statutory management process, worried it’s put their investments – and any hope of funds being returned – at risk.

But the documents state “in light of concerns about certain transactions, especially the agreements to swap limited partnership interests for shares, orthodox liquidation and receivership processes are not sufficient to preserve the interests of investors in particular”.

The FMA also said it would reduce the risk of inefficiency caused by multiple insolvency processes and could stop any delays or reducing returns to creditors.

The multimillion-dollar property developer’s under investigation by the Financial Markets Authority. (Source: 1News)

Bayly accepted the recommendations and concerns of the FMA and recommended Cabinet agree to put Du Val and its entities into statutory management, with the sign-off from the Governor-General, on August 21.

Statutory management has only been used by the Government a handful of times.

In 1989, Equiticorp was placed under statutory management when the company collapsed.

The most high-profile recent case was that involving Hubbard Management Funds and Aorangi Finance in 2010.

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