ASIC has started legal action against LM Investment Management Ltd (LMIM) founder, Peter Charles Drake, and former directors, seeking financial penalties and banning orders following the collapse of the Gold Coast-based fund manager.

ASIC’s civil penalty proceedings in the Federal Court of Australia are against Mr Drake, Francene Maree Mulder, Eghard van der Hoven, Simon Jeremy Tickner, and Lisa Maree Darcy.

ASIC alleges Mr Drake used his position to gain an advantage for himself and the former directors breached their director’s duties for failing to act with the proper degree of care and diligence regarding transactions involving the LM Managed Performance Fund (MPF).

Specifically, ASIC’s action focuses on the conduct of the directors in signing off on a series of loans to Maddison Estate Pty Ltd, which Mr Drake owned and controlled, in 2011 and 2012.

MPF loaned funds to Maddison Estate Pty Ltd, to develop a property development on the Gold Coast known as ‘Maddison Estate’. Mr Drake was the sole director of Maddison Estate Pty Ltd and the beneficiary of a discretionary trust, managed by another company controlled and owned by him, that held all the beneficial ownership in the company.

ASIC Commissioner Greg Tanzer said, ‘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.’

The maximum fine for a director breaching their duties is $200,000 for each contravention. As well as fines, ASIC is also seeking to disqualify Mr Drake and the former directors from managing companies and providing financial services.

The proceedings are listed for a directions hearing in the Federal Court in Brisbane on 25 November 2014.

Background

Between 2008 and 2012, through numerous loans using MPF funds, Maddison’s loan limit was increased from $40 million to $280 million. By the time LMIM entered into administration, and although a development approval had been procured and some preliminary land clearing had taken place, no construction work had commenced on the development, no plans of subdivision had been registered and none of the proposed housing lots had been sold.

Loan extensions in 2011 and 2012 were approved by the directors in the absence of independent valuations or feasibility studies. ASIC alleges decisions taken by Mr Drake and the former directors to vary and extend Maddison’s loan from $115 million to $180 million in September 2011, and from $180 million to $280 million in August 2012, were not decisions which the directors of a trustee in the position of LMIM should have taken.

ASIC also alleges that a $9.8 million ‘loan re-establishment fee’, payable to LMIM (as trustee of MPF), which was extended to Maddison Estate Pty Ltd as part of the 2012 loan extension, was levied to ensure that the LM group of companies (principally controlled or owned by Mr Drake) could book a financial year profit.

ASIC alleges contravention of:

• section 180 (duty of care and diligence), section 181 (duty to act for a proper purpose) and section 182 (duty not to use position to gain an advantage) of the Corporations Act 2001, by Mr Drake, in respect of the 2011 loan extension and the 2012 loan extension
• section 180 by Ms Mulder and Mr van der Hoven in respect of the 2011 loan extension and the 2012 loan extension, and
• section 180 by Mr Tickner and Ms Darcy in respect of the 2011 loan extension.

ASIC’s LM Investment Management Ltd actions

LMIM was the responsible entity for seven registered managed investment schemes and the trustee for MPF, an unregistered managed investment scheme with about 4,500 investors. More than $400 million was invested in MPF. In total, LMIM was responsible for managing at least $800 million on behalf of approximately 12,000 investors in Australia and overseas.

ASIC has taken other action and been involved in other court proceedings arising out of the collapse of LMIM (refer: 13-266MR, 13-211MR, 13-183MR and 13-075MR).

Source: ASIC – 14-308MR ASIC takes civil action against LM founder and former directors

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