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THE bid to remove the embattled City Pacific Ltd as the trustee of the City Pacific First Mortgage Fund, gathered momentum today with the launch of entity takeover Investaguard.
Investaguard is the purpose built vehicle driven by lawyer Robert Hynes (pictured). The managing partner of Hynes Lawyers says the entity has been created for the purpose of returning capital to CPFMF unit holders. The $900 million First Mortgage Fund has had both redemptions and distributions frozen since mid last year.
Hynes today confirmed his firm has been engaged to assist with the removal of City Pacific to manage the fund. Hynes is investigating the prospects of applying to the Supreme Court of Queensland to remove City Pacific due to the irreconcilable conflicts of interest the company has as trustee for the fund.
He says almost one third of all money lent out by the fund has been to City Pacific related parties and those loans are now substantially in default.
“What makes the situation even more untenable is that City Pacific continues to charge significant management fees for the management of loans to its related parties which as far as we are aware seem to be all in default,” says Hynes.
“Investaguard will, similar to a stapled security, be 100 per cent beneficially owned by the current unit holders in the City Pacific First Mortgage Fund thereby aligning everyone’s interests, internalizing the management and significantly reducing the operating costs of the fund.”
The Investaguard Board includes directors, Stephen Maitland (principal of Delphin Associates); Paul Moni, the managing director of Moni Solutions Pty Ltd, a governance and compliance consultancy in Brisbane; and accountant Peter Wilson - one of the founding shareholders and directors of a mining services business with revenues in excess of $100m.
“External funding for this strategy has been obtained and the appointment of Board and executive positions with Investaguard is well progressed,” says Hynes.
Hynes notes that City Pacific’s December half yearly financials disclosed that it is currently in breach of its Australian financial services license conditions and that there are substantial issues concerning its viability to continue as a going concern.
Investaguard will notify City Pacific chief executive John Ellis of its intentions next week. It is expected that a battle of the lawyers will ensue. Ellis was the lawyer who replaced Hynes at law firm Minter Ellison when the former resigned to set up his own firm.
Ellis is concerned that both Investaguard and another proposed takeover by Trilogy Capital will encourage a fire sale of assets.
“Our intention is to remove external costs and we encourage unit holders to look at all of their options,” says Hynes.
City Pacific will face unit holders on May 1 in a bid to halve fees to 1.5per cent.
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