THE corporate regulator has launched civil action against Peter Drake (pictured), founder of the failed funds manager LM Investment Management (LMIM), with the case focusing on an alleged $240 million blowout in loans procured by the company against the Maddison Estate at Pimpama.
The Federal Court action, brought by the Australian Securities and Investments Commission after a year-long probe, is alleging that Drake used his position as director to gain advantage for himself.
It is also alleging that former LM directors Francene Maree Mulder, Eghard van der Hoven, Simon Jeremy Tickner, and Lisa Maree Darcy had breached their directors’ duties by failing to act with due diligence over transactions that involved the LM Managed Performance Fund (MPF).
The fund was owner and developer of the Maddison Estate, which LM touted at the time to have an end value of $1.5 billion.
The project has since been acquired by Sunland Group (ASX:SDG) which snared it for $24.75 million through a debt buyout deal with mortgagee Suncorp.
The action by ASIC comes on the heels of Drake this week failing to fend off a Supreme Court action by KordaMentha which is seeking $22 million in outstanding loans to be repaid to LMIM by Drake. The court loss leaves the former Gold Coast high flyer exposed to bankruptcy proceedings.
As for ASIC’s civil action, which is set for mention in the Federal Court in Brisbane on November 25, the focus is on LM directors signing off on a series of loans in 2011 and 2012 to Maddison Estate Pty Ltd, a company owned and controlled by Drake.
The corporate regulator is alleging that Drake and the former directors varied and extend Maddison’s loan from $115 million to $180 million in September 2011 and from $180 million to $280 million in August 2012. The loan was originally capped at $40 million.
ASIC says these “were not decisions which the directors of a trustee in the position of LMIM should have taken”.
It also says a $9.8 million “loan re-establishment fee” paid to LMIM, the trustee of MPF, as part of that loan extension was designed to ensure the LM group booked a profit in the 2012 financial year.
MPF loaned funds to Maddison Estate Pty Ltd to develop the Maddison Estate, which only amounted to early civil works before LM collapsed early last year. Land sales had not been secured at the time, says ASIC.
ASIC says it is seeking financial penalties against the directors and their disqualification from managing corporations and providing financial advice. The penalties are up to $200,000 for each contravention.
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