Legal action has commenced against collapsed Gold Coast-based LM Investment Management Limited founder Peter Charles Drake and other former directors, over the lending of funds for a Gold Coast development.
Maddison Estate Pty Ltd, known as Maddison Estate, was a Gold Coast property development that LM Managed Performance Fund loaned money to. The ASIC action is specifically targeted on the conduct of the directors of LM Investment Management Limited approving a number of loans to Maddison Estate. Drake owned and controlled Maddison Estate in 2011 and 2012.
The loan limit to Maddison was increased from $40 million to $280 million between 2008 and 2012. In 2011 and 2012 loan extensions had been approved by the former directors. This was done without independent valuations or any feasibility studies.
No construction had begun, no plans of subdivision had been registered and none of the proposed lots had been sold by the time LM went into administration. Development approval had been obtained with some land clearing taking place.
ASIC alleges that the decisions to extend the loan from $115 million to $180 million in September 2011, and further from $180 million to $280 million in August 2012, were inappropriate.
It is also alleged by ASIC that a loan re-establishment fee of $9.8 million, that was payable to LM Investment Management Limited, was extended to Maddison Estate as part of a 2012 loan extension and then levied to ensure they booked a profit for the financial year.
ASIC is seeking financial penalties and banning orders.
Civil penalty proceedings are currently underway in the Federal Court of Australia against Drake, with allegations he used his position to gain an advantage.
Francene Maree Mulder, Eghard van der Hoven, Simon Jeremy Tickner and Lisa Maree Darcy, as former directors, also face civil penalty proceedings for breaching director’s duties and failing to act with the proper degree or care and diligence. This is in relations to transactions involved the LM Managed Performance Fund, with various contraventions applying to different former directors.
The maximum fine for directors breaching duties is $200,000 per contravention. ASIC also seeks disqualification for Drake and the former directors from managing companies and providing financial services in the future.
“Investors should be able to have confidence that the people responsible for managing their investments act appropriately, take a diligent and intelligent interest in the affairs of the company, and apply an enquiring mind to the responsibilities placed upon them,” said ASIC commissioner Greg Tanzer.
A directions hearing in the Federal Court will be in Brisbane on 25 November.
LM Investment Management was the responsible entity for a total of seven registered managed investment schemes, managing a total of more than $800 million for 12,000 Australian and overseas investors.
They were the trustee for MPF, an unregistered managed investment scheme with 4,500 investors, according to ASIC. More than $400 million was invested in MPF.
This article originally appeared on Property Observer.