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14-308MR ASIC takes civil action against LM founder and former directors
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.
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.
Investors and unit holders caught up in the collapse of LMIM should check our dedicated LMIM webpage for further information.
Editor's note 1:
The matter has next been listed for directions on 13 February 2015 at 9.30 am.
Editor's note 2:
The matter has next been listed for directions on 17 February 2015.
Editor's note 3:
The matter has next been listed for directions on 15 April 2015.
Editor's note 4:
In January 2015 Mr Drake became a bankrupt. Under the law, ASIC may make a banning order against a person if the person becomes bankrupt.
On 24 March 2015 ASIC banned Mr Drake from providing any financial services until 11 January 2018, being the remaining period of his bankruptcy.
The banning order is part of ASIC's ongoing response to the collapse of LM Investments, including the civil penalty action against Mr Drake and other directors in which disqualification orders are being sought.
Editor's note 5:
On 15 April 2015, the matter was listed for the hearing of an interlocutory application on 22 May 2015.
Editor's note 6:
On 22 May 2015, the matter was next listed for directions on 13 July 2015.
Editor's note 7:
On 30 June 2015, His Honour Edelman J cancelled the directions hearing listed for 13 July 2015 and re-listed the matter for directions on 13 August 2015.
Editor's note 8:
On 13 August 2015, His Honour Edelman J made directions regarding minor amendments to the statement of claim, foreshadowed directions to be made shortly by consent, and re-listed the matter for directions on 12 October 2015.
Editor's note 9:
On 12 October 2015 the matter was re-listed for directions on 20 November 2015.
Editor's note 10:
The directions hearing scheduled for 20 November 2015 was moved to 19 November 2015. At this hearing, the next directions hearing was scheduled for 20 January 2016.
Editor's note 11:
On 7 December 2015, the court agreed to schedule the next directions hearing for 2 February 2016.
Editor's note 12:
On 2 February 2016, His Honour Edelman J set the matter down for trial for four weeks from 29 August 2016 to 23 September 2016, and scheduled the next directions hearing for 26 February 2016.
Editor's note 13:
His Honour Edelman J vacated the directions hearing set down for 26 February 2016, and relisted the matter for directions on 30 May 2016.
Editor's note 14:
On 30 May 2016, His Honour made orders (by consent) requiring the parties to consult and agree upon an eTrial provider by 13 June 2016, and allowed ASIC to file one additional affidavit. The next directions hearing is listed for 15 June 2016.
Editor's note 15:
On 15 June 2016, His Honour Edelman J made directions for procedural matters leading up to the trial set down for four weeks from 29 August 2016 to 23 September 2016.
Editor's note 16:
On 12 September 2016, after the close of its case, ASIC's claim against the fourth and fifth respondents was dismissed by consent.
The proceeding has been adjourned until 25 October 2016 for closing submissions.