Wellington - New Zealand's consumer watchdog Commerce Commission on Thursday launched an investigation into the country's third largest finance company, Hanover Finance Limited, after it froze repayments to 16,500 investors owed more than 550 million New Zealand dollars (about 421 million US dollars).

The commission said its investigation centred on whether the company had breached the Fair Trading Act by making misleading representations to prospective investors and the public generally.

Hanover Finance suspended business on Wednesday, with its joint owner Mark Hotchin saying, "Against a backdrop of global credit uncertainties, falling property prices and lower reinvestment rates, the industry model has collapsed."

Newspapers quoted angry investors, who had asked to withdraw their funds early after a number of finance companies ran into difficulties, as saying they had been assured their money was safe as recently as last week.

Reports said Hanover's website was down for most of Wednesday and it was not answering telephone calls.

A total of 25 of New Zealand's 49 finance companies have now either collapsed or admitted they were unable to repay deposits on maturity inside the last two years, news reports said.

Hotchin said the Hanover board was also suspending capital and interest repayments and investments with subsidiary United Finance Limited and a sister company, Hanover Capital Limited.

Hotchin, who owns the company with Eric Watson, one of New Zealand's richest men, said the company's board was "acting early to preserve value" as market conditions continued to deteriorate and uncertainty mounted over borrowers' abilities to repay.

"Alternate financiers are increasingly unwilling to step in, and we're also now starting to see borrowers trying to take advantage of the uncertainty to delay payments, further compounding the situation," he said.

Hotchin said directors were working on a plan to restructure the business.

He said the company was cancelling its contract to sponsor the weather report on Television New Zealand's nightly peak-hour news programme in which has it boasted Hanover would protect investors' deposits whatever the economic weather. (dpa)