Grim outlook for investors as LM administrator chases funds
But for Drake's beleaguered investors that is hardly the worst of it. They will be lucky to get 5¢ in the dollar, according to KordaMentha.
It is this LM Managed Performance Fund that contains Drake's "billion dollar" centrepiece, the Maddison Estate project. KordaMentha estimates investors may only recover $2 million from the venture. LM's Managed Performance Fund had loaned $250 million to 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 at $1 billion.
Rubbing salt into investor wounds, the development was controlled by Peter Drake's private companies.
Total recoveries for the fund are now estimated at just $11.2 million to $13.7 million, or 5¢ in the dollar. But that is before the costs of the administration, so the prospect of investors getting any return is slim.
KordaMentha valued the Maddison land at $21.4 million 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 paid in advance. KordaMentha 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). KordaMentha says its investigations have found another $7.5 million was paid under a similar agreement from the fund to LMA.
But the investors 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 LMA 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.
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, $163 million in related party transactions had been made across all the funds and LM entities.
KordaMentha also foreshadowed possible action against Drake and LM directors but 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 this author and the publisher last year, claiming among other things that we had imputed that he was greedy and had overcharged his investors.
Frequently Asked Questions about this Article…
According to administrator KordaMentha, the outlook is grim — total recoveries for the fund are now estimated at just $11.2 million to $13.7 million (around 5¢ in the dollar). Those numbers are before administration costs, so the prospect of investors getting any meaningful return is slim.
Peter Drake is a Gold Coast impresario whose private companies controlled the Maddison Estate development. KordaMentha says Drake has told administrators he cannot repay a $16.9 million loan made to one of his private companies from LM’s Managed Performance Fund, and other LM entities made further loans to companies controlled by him.
The Maddison Estate was described by LM directors as the fund’s ‘billion dollar’ centrepiece. LM’s Managed Performance Fund had loaned $250 million to the development — about 60% of the entire mortgage fund — but the land remains bare and KordaMentha now values the Maddison land at only $21.4 million to $24 million.
Because the fund only holds a second mortgage and Sunland Group holds the $20.3 million first mortgage, KordaMentha estimates recoveries from the Maddison project at just $1 million to $2 million — from a project once touted as worth $1 billion.
Yes. Besides the $16.9 million Hong Kong loan, KordaMentha found a further $30 million in loans from other LM entities to companies controlled by Drake. It also identified $20.7 million in prepaid management fees paid from the MPF to an entity called LM Administration (which then made loans to Drake) and a further $7.5 million under a similar agreement.
Administrators FTI and KordaMentha are seeking to recover the Drake loans and are considering action against LM’s other directors. They are investigating possible 'uncommercial transactions,' including $20.6 million in payments made between January 2012 and March 19 (the start of administration), with about 12% involving payments to Drake and related parties. Evidence also points to $163 million in related-party transactions across LM funds and entities.
No. The article notes investors have not been deemed creditors by the LM administrators. Instead, their savings effectively rank behind the fees of the very people who put them into these investments, reducing their chances of recovery.
KordaMentha foreshadowed possible action against Drake and LM directors, but said it might not have the funding to pursue litigation given the limited amounts that may be recovered from directors personally. Administrators are nonetheless seeking to recover loans and are considering director action.
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