Gold Coast impresario Peter Drake has told administrators he cannot repay the $16.9 million loan made to one of his private companies from LM’s Managed Performance Fund.
But for Drake’s beleaguered investors that is hardly the worst of it. They will be lucky to get 5 cents in the dollar, according to Korda Mentha.
It is this LM Managed Performance Fund which contains Peter Drake’s “billion dollar” centrepiece, the Maddison Estate project, whose gardens were to have been landscaped by Jamie Durie around a wave pool designed by Kelly Slater.
Yet the latest report from the fund’s administrators, Korda Mentha, estimates investors may only recover $2 million from the Maddison project.
LM’s Managed Performance Fund had sunk $250 million in loans into the development – it made up 60 per cent of the entire mortgage fund although it remains bare earth today – and Peter Drake and his fellow LM directors had estimated its gross value (once developed) at $1 billion.
Rubbing salt into investor wounds, the development was controlled by Peter Drake’s private companies.
The Korda Mentha report shows just how out of whack with reality were the asset valuations struck by LM directors.
Total recoveries for the fund are now estimated at just $11.2 million to $13.7 million, or 5 cents in the dollar. But that is before the costs of the administration so the prospect of investors getting any return is slim.
Korda Mentha valued the Maddison land at $21.4 to $24 million but the fund only holds a second mortgage over the asset – which ranks behind the first mortgage of $20.3 million held by the Sunland Group – so recoveries are estimated at just $1 million to $2 million. That from a project valued at $1 billion.
Besides the $16.9 million loan made by the fund to a Drake company in Hong Kong, a further $30 million in loans from other LM entities were made to companies controlled by the Kiwi entrepreneur. Some of these proceeds were the result of management fees pre-paid in advance. Previously Korda Mentha had found that $20.7 million in pre-paid fees had gone from the MPF to a Drake-related entity called LM Administration (which then made loans to Drake).
In its latest report, Korda Mentha says its investigations have found another $7.5 million was paid under a similar agreement from the fund to LMA.
A recent administrators’ report for LM Investment Management shows commissions of $10 million are still owed to financial advisors. However, the actual investors themselves have not been deemed by the LM administrators to be creditors. Rather, their savings rank behind the fees of the very people who put them into these dud investments in the first place.
The FTI report into LMIM, and its report into LM Administration which was the subject of the story on Tuesday, show the administrators are seeking to recover the Drake loans. They are 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,” says the report.
It is investigating possible “uncommercial transactions”, including $20.6 million in payments made between January 2012 and March 19 this year when the administration began. Some 12 per cent of this involved payments to Peter Drake and other related parties.
Deals with associates had been a feature of LM long before then. According to evidence in the Supreme Court proceedings, $163 million in related party transactions had been made across all the funds and LM entities.
Another four LM directors, Simon Tickner, Lisa Maree Darcy, John O’Sullivan and Grant Fischer resigned last year as LM’s financial position was deteriorating.
Korda Mentha also forshadowed possible action against Drake and LM directors but it said it might not have the funding to sue – in light, that is, of what might be recovered from directors personally.
Peter Drake brought defamation proceedings against the author of this story and the publisher last year, claiming among other things that we had imputed that he was greedy and had overcharged his investors.