The administrators of failed funds management operation LM Group have quietly sold a beachside property to a confidante and key associate of LM’s founder Peter Drake for less than half its previous sale price.
The buyer, Lisa Maree Darcy, is a former LM director and trustee for Peter Drake’s family trust Ekard (Drake spelt backwards).
News of the preferential deal on the property at Surfers Paradise, will be taken through gritted teeth by Peter Drake’s long-suffering creditors. They are forking out $3 million in fees to the administrators FTI Consulting whose duty it is to act on their behalf.
The Gold Coast residence however was not put up for tender. There was no disclosure of the sale to creditors. And the asset may end up in the hands of Peter Drake, who owes LM group $43 million in loans, is yet to be made bankrupt and transferred almost half a million dollars to his girlfriend as LM was collapsing last year.
Company searches show that on August 22 last year, LM Investment Management (in administration) sold its 57 per cent stake in 20 Albatross Avenue, Mermaid Beach, for $492,000. LM’s own valuation for the half stake had been $769,500.
It had bought the Mermaid Beach property in 2008 for $1.795 million, four years before the group collapsed and when it was under the control of its founder, Kiwi entrepreneur Peter Drake.
The house was on the market ten years ago for $1.125 million. It was sold for $1.075 million in 2005 and three years later LM bought it for $1.795 million.
According to local real estate agents, the three bedroom and three car-space Mermaid Beach property would easily fetch $1 million in the current market.
“Albatross Avenue is a cool area,” one told Business Day yesterday. The property has a UCV (unimproved capital value) of $810,000. We usually put 40 per cent on that. I’ve got a buyer right now who would pay $1 million cash, unconditional on a 30 day settlement”.
Peter Drake’s former mansion across the street was touted as a $20 million property during the boom. It sold last year for just $7.35 million last September. While prices, especially at the upper end have fallen since the financial crisis, those in the $1 million to $2 million have lost only a fraction of their value.
In light of the apparently deep discount on the LM sale to long-time Drake associate Lisa Darcy, one source close to Drake described the transaction as a ‘sweetheart deal’, saying it was probably in breach of the administrator’s fiduciary duties. For one, it was a ‘preferential payment’ to a related party and as such should be clawed back by the corporate regulator on behalf of creditors.
Unfair preferences involve transactions that discriminate in favour of one creditor at the expense of other creditors.
Secondly, it arguably breached Section 420A of the Corporations Act which requires the controller – in this case FTI Consulting – to “take all reasonable care to sell the property for … not less than market value”.
The industry standard when handling assets in trust is to for a receiver to put the property on the open market and bring it to the attention of prospective buyers by advertising and responding to all inquiries.
When LM purchased the property in 2008, it did so in conjunction with Lisa Darcy, Drake’s second-in-charge at the mortgage fund business. LM owned 57 per cent of the property and Darcy’s company Dhanel Pty Ltd owned the balance.
Dhanel is the trustee of the Drake family trust, Ekard Investment Trust. It is also trustee for Iwazo Business Trust, whose trading name is Lauxes Champagne Bar (Lauxes is ‘sexual’ spelt backwards, and was the name of Peter Drake’s upmarket restaurant on the Gold Coast).
As his $3 billion fund empire was falling apart in March last year, Peter Drake appointed Ginette Muller and John Park of FTI Consulting as voluntary administrators.
Contacted by Business Day this week, FTI partner Ginette Muller said the reduced sale price on LM’s 57 per cent (Dhanel now owns 100 per cent) was due to a general fall in the property market.
“It is fair to say that all property values on the Gold Coast experienced a significant decline between 2008 and 2013. The subject property was not immune to this market decline,” said Ms Muller. “Sale of the property to Lisa Darcy ensured that no marketing costs or sales commissions were incurred.”
Ms Muller said the sale was a “better than anticipated result” when viewed against an independent discount which had been obtained, although she declined to disclose the valuation.
LM had valued the 57 per cent stake at $769,500 in its 2012 financial accounts (and more than $1 million in the accounts the year before that). FTI confirmed this was a directors’ valuation rather than an independent valuation and the asset had been used by FTI, in part, to justify LM’s net asset backing for the purposes of holding an Australian Financial Services (AFS) licence.
The ultimate question is whether Peter Drake himself may gain a benefit from the transaction. Ms Muller said it “wouldn’t be impossible for an undisclosed deal of some sort to exist”.
When contacted by Business Day, ASIC would not be drawn on the issue of Peter Drake’s potential involvement. It also declined to indicate whether it would unwind the transaction on behalf of LM creditors.
The revelation of the preferential transaction comes at an embarrassing time for the regulator. ASIC faces the Senate Inquiry into its performance this week amid criticism, among other things, that it is too soft on enforcement.
In June last year, Business Day published internal emails obtained under Freedom of Information laws which showed FTI received an exemption from providing financial accounts for the failed mining company Kagara which is now under its stewardship.
The emails trail showed the senior managing director at FTI, Stephan Dopking, addressing executives at ASIC as “Dear Team” and requesting a one-day turnaround for the relief order.
The request was promptly granted by the regulator. FTI’s Dopking – who is not involved in the LM insolvency – was formerly head of ASIC’s insolvency division. Both ASIC and FTI denied that any favours were given to FTI.
For its part, FTI has said previously it would seek to recover funds from Peter Drake and was also considering action against LM’s other directors – Francene Mulder, Katherine Phillips and Eghard van der Hoven.
“From our investigations to date, there is evidence to indicate the company may have traded whilst insolvent for a period and entered into certain transactions that may be voidable against a liquidator,” the report said.
Another four directors – Simon Tickner, John O’Sullivan, Grant Fischer and Lisa Darcy – had resigned in 2012 as LM’s finances were fast deteriorating.
No action however has been taken by FTI against Peter Drake or any other LM directors. Instead, the administrators have sold the Mermaid Beach property to the trustee of Peter Drake’s family trust Lisa Darcy for what appears to be a deep discount.
Darcy is an unsecured creditor and a related party of LM. As such, the Mermaid property sale appears to be a preference payment. She declined to respond to requests for an interview for this story.
Meanwhile, with four insolvency groups – FTI, McGrathNicol, KordaMentha and Bentleys – in control of the LM group assets, the prospects of a meaningful return to creditors are diminishing.
An excerpt from a Bentleys report from last December showed FTI fees of $3.069 million charged from the time of the administration. McGrathNicol (receivers for Deutsche Bank who have realised assets sufficient to repay Deutsche ) have charged only 20 per cent of FTI’s costs at $647,000.
Peter Drake is now working at his former business Drake Insurance, now known as Australian Global Insurance Services, and resides in the luxurious Soul tower at Surfers Paradise.