THE Supreme Court of Queensland has found five former executives of failed Gold Coast financial services group MFS Group misappropriated $143.5 million in funds just months ahead of the company's spectacular collapse in 2008.
The civil action, which was brought by the Australian Securities and Investments Commission in October 2009, had alleged that the funds were transferred from the MFS-controlled Premium Income Fund (PIF) and used to pay company debts.
The trial was first heard in 2013 and again in 2014 in a protracted civil case that has led to a 343-page judgment finally handed down this week by Justice James Douglas.
After deliberating on the case for 20 months, Justice Douglas has found that the former executives of MFS Investment Management Limited (MFSIM), the responsible entity of PIF at the time, are liable for breaching their official duties.
The executives include former MFS chief executive Michael King and his successor Craig White, as well as Guy Hutchings, David Anderson and Marilyn Ann Watts.
Justice Douglas has yet to issue penalties against the respondents, adjourning the matter until June 24 when he will make declarations of contravention and give directions in relation to the penalty hearing.
The executives potentially face a maximum penalty of $200,000 each for the offences.
In the lead-up to the offences occurring, MFS was under pressure to repay maturing short-term debt of about $200 million. The problem was heightened by the company's failure in late 2007 to secure a deal to sell its travel and accommodation business Stella Group, which has since evolved to become Mantra Group (ASX:MTR).
ASIC had alleged that two sums totalling $147.5 million were transferred from PIF to two companies in the MFS group in late 2007. ASIC argued that these funds were taken illegitimately from PIF, a $1 billion investment vehicle that sourced funds from retail investors.
ASIC alleged that the respondents were subsequently involved in falsifying and backdating company documents as late as February 2008 to justify the transactions.
MFS, which was later rebranded as Ocatviar before finally succumbing to liquidators, collapsed in 2008 with debts of $2.5 billion.
ASIC has lauded the lengthy civil action as addressing 'the core obligations of a responsible entity and its directors and officers to operate the fund with care and diligence, and in the best interests of the funds members'.
It says the court has found the MFS executives 'were the people closely and relevantly connected with the company and its actions'. It says each of them was found to have acted dishonestly as officers of MFSIM.
"Company officers, including directors, play a very important role as gatekeepers in Australia's financial system," says ASIC Commissioner John Price.
"In this case we saw individuals neglect their duty to act in the interest of their investors."
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support