THE Warrnambool-based Southern Finance company has suspended investors' access to funds while it negotiates the company's sale to the Bendigo and Adelaide Bank.
The move follows the collapse of another non-bank debenture issuer, Banksia, last month but Southern said it was not in receivership.
Southern general manager Ashley King said yesterday the planned sale had not been prompted by financial difficulty.
However, there had been an increase in the withdrawal of funds following Banksia's collapse, he said.
He said the company's primary concern in seeking a sale was to ensure the security of investors' funds.
The firm has about 7700 investment accounts, with some investors holding multiple accounts.
Mr King said he hoped the suspension of investors' access to funds would be only for a week.
Access to funds had been suspended to ensure "fair and equal treatment of all investors" in Southern Finance while the sale was negotiated .
Mr King expected investors would receive all of their funds with interest following the completion of a binding agreement with the Bendigo and Adelaide Bank and the consent of the trustee for investors. He said there had been no increase in the level of defaulting loans held by the company before the decision to sell.
The company's May 7 prospectus this year said about 5.5 per cent, or $12,686,778 of its mortgage loans were in default at March 31.
Southern said it had entered into a non-binding heads of agreement with the Bendigo and Adelaide Bank for the sale of Southern's loan book, certain investments, equipment finance assets and its financial planning business.
Mr King said the company's assets, which include its loan book, were about $290 million.
The proposed sale was likely to take six months.
"Interest will continue to accrue on Southern Notes (debt securities) on issue during the suspension period but interest will not be paid until after the binding agreement is finalised and the suspension period ends," the company said.
"Redemptions due during the suspension period will not be paid until after the binding agreement is finalised and the suspension period ends."