(updated 21 October 2013)

ASIC has commenced civil proceedings in the Supreme Court of Queensland against MFS Investment Management Ltd (now known as ACN 101 634 146 (in liquidation)) ('MFSIM'), a subsidiary companies of the formerly listed MFS Ltd (now known as Octaviar Ltd (in Liquidation), and four former officers and one manager of MFSIM.

The proceedings relate to the use of $147.5 million in funds of the Premium Income Fund (PIF), for which MFSIM was the responsible entity at the relevant time.

In taking this action, ASIC is addressing the core obligations of a responsible entity and its directors and officers to operate the fund with care and diligence, and in the best interest of the fund’s members.

The defendants in the matter are:

• Michael Christodoulou King of Canungra, Queensland, former Chief Executive Officer (CEO) and Director of MFS Ltd;

• Craig Robert White of Holland Park West, Queensland, former Deputy CEO (and for a short period, CEO) and director of MFS Ltd and MFSIM;

• Guy Hutchings of Paddington, NSW, former CEO and director of MFSIM;

• David Mark Anderson of Robina, Queensland, former CFO and Company Secretary of MFS Ltd;

• Marilyn Anne Watts of West Pennant Hills, NSW, former fund manager of MFSIM; and

• MFSIM.

ASIC is seeking orders for declarations of contraventions, pecuniary penalties, compensation and disqualifications from managing corporations.

From 4 November 2013 to 13 December the trial was part-heard before Justice Douglas. Further trial dates scheduled: 22 April 2014 to 9 May 2014 and 4 August 2014 to 29 August 2014.

ASIC has agreed a settlement of the proceedings against MFSIM, however a final determination on penalty will not be made until after the trial against the other defendants has been heard.

The transactions

ASIC alleges that:

• in November 2007, officers of MFSIM caused PIF to transfer $130 million to MFS Administration Pty Ltd, from which MFS Administration Pty Ltd paid a debt of $103 million owed by another MFS Ltd subsidiary to Fortress Credit Corporation (Australia) Pty Ltd.

• in December 2007, officers of MFSIM caused PIF to transfer $17.5 million to MFS Pacific Finance Ltd, a New Zealand registered company (now known as OPI Pacific Finance Ltd (Receivers and Managers Appointed) (Liquidator appointed).

• in about January 2008, officers and the fund manager of MFSIM created and used false documents, relating to the use of the $147.5 million.

• the funds were used for a purpose that did not benefit PIF and that PIF suffered a loss as a consequence..

Background

MFS Ltd was a publicly listed company with interests in financial services, travel and leisure and child care businesses.

MFSIM was an unlisted public company and wholly owned subsidiary of MFS Ltd (now in Liquidation). MFSIM was the responsible entity for six unlisted managed investment schemes, including the PIF and the Maximum Yield Fund (‘MYF’). MYF is also relevant to the current civil penalty proceedings.

The PIF was an unlisted managed investment scheme which offered investments to retail and wholesale investors through a product disclosure statement.

Editor's note 1:

This release was amended on 21 October 2013 to update the list of defendants and insert references to proceedings commencing 4 November 2013.

Editor's note 2:

This release was amended on 17 March 2014 to state that from 4 November 2013 to 13 December the trial was part-heard before Justice Douglas. Further trial dates scheduled: 22 April 2014 to 9 May 2014 and 4 August 2014 to 29 August 2014.

Editor's note 3:

This release was amended on 12 August 2014 to state that the trial will run until 12 September 2014.

Editor's note 4:

The trial concluded on 12 September 2014 and the parties are currently awaiting decision.

Editor's Note 5:

On 23 May 2016, the Supreme Court of Queensland found that five former executives of MFSIM had acted dishonestly in their roles. See 16-158 MR for further details of the judgment and updates in relation to the progress of the penalty hearing.