LM fund gave Drake $26m loan
Add this to other loans, including one for $16 million to a Hong Kong company controlled by the Kiwi-born businessman, and it appears that Drake owes LM at least $46 million and is headed for bankruptcy.
Drake brought a defamation action against Fairfax Media and the author of this story before the collapse of his $3 billion fund empire.
Fairfax is defending the claim.
The $26,473,875 loan to Drake has come to light in a report on the affairs of LM Administration (LMA) by the administrators to Drake's stable of companies, FTI Consulting.
This was the largest loan among the $30.2 million identified by the administrators as payments to related parties of Drake and to Drake himself. It is not specified by the administrators when the loans were made and the FTI administration report says legal proceedings have begun to recover the money.
"We have estimated that there will be nil recoveries in pessimistic scenario with recoveries unknown in optimistic scenario," the administrators' report says.
Sources said Drake was likely to appoint a trustee in bankruptcy.
"Formal loan agreements were not entered into for any of these loans and to date none of the loans have been repaid to the company, however, the parties did acknowledge the loans were payable on demand," says the report.
"Our investigations indicate the company's financial difficulties can be attributed to ... excessive loan amounts to and payment of personal expenses of related parties of the director and the director himself."
Revelation of the loans presents further anguish for investors in Drake's LM funds. With their savings already frozen, they face diminishing returns on their already dwindling investments.
LMA, whose sole director and shareholder is Drake, also received $14 million in "pre-paid income" from five other LM funds, including the flagship LM First Mortgage Income Fund - that is, management fees paid in advance.
In 2010 and 2011, as LM's funds were frozen and as the financial position deteriorated, the gross income of LMA - the company which made the $26 million loan to Drake - increased by 118 per cent, from $9.5 million to $20.8 million, "mainly due to a 200.49 per cent increase in management fees".
Now LMA is insolvent, and although it has total assets of $31.6 million, they include the loans to Drake, whose prospects of recovery are not compelling.
LMA, which is trustee of the Ekard Property Trust (Drake spelt backwards), counts among its other assets two properties on South Stradbroke Island. It also owns four cars and leases one, including a Lexus and a Mercedes SL65AMG.
Also included in the report on LMA is the administrators' investigation of Drake's personal financial position. Property searches showed Drake personally owned properties in Maldon, Victoria, Russell Island, Queensland, and the family home at 13-15 Albatross Avenue, Mermaid Beach, on the Gold Coast. The latter, whose market value is in the vicinity of $15 million, is subject to a mortgage and a caveat.
The administrators also said they were aware of a property in Savusavu, Fiji, owned by Drake. His
ex-wife lives in Monaco.
BusinessDay revealed earlier this year the existence of a $16 million loan from the LM Managed Performance Fund to other interests associated with Drake. Ironically, this loan is secured by a personal guarantee from Peter Charles Drake and a fixed and floating charge over the assets of Century Star Investments Pty Ltd (CSI). CSI is a Hong Kong company which counts among its assets a shareholding in LM Investment Management itself.
LM has two shareholders: CSI, which holds 17 ordinary shares and Oceanboard Pty Ltd as trustee for the Drake Management Trust (with 18 ordinary shares).
Drake is the sole director of Oceanboard and it is likely that Drake Management Trust may be the only shareholder of CSI, say sources.
Frequently Asked Questions about this Article…
The administrators’ report identified a $26,473,875 loan from LM Administration (LMA) to Peter Drake as the largest of about $30.2 million in payments to related parties. The report does not specify when the loan was made, states that no formal loan agreements were entered into, and says the parties acknowledged the loans were payable on demand. Administrators have begun legal proceedings to try to recover the money, but estimate nil recoveries in a pessimistic scenario and unknown recoveries in an optimistic one.
The article says Drake appears to owe LM at least about $46 million, combining the $26.47 million loan to him and a previously reported $16 million loan to interests associated with him. Sources quoted in the administrators’ report said Drake was likely to appoint a trustee in bankruptcy, indicating he is headed toward bankruptcy proceedings.
Investors in LM mortgage funds face frozen savings and diminishing returns, according to the article. The revelation of large related-party loans and LMA’s insolvency adds further anguish for investors, while administrators investigate and pursue recoveries — outcomes that could take time and may deliver limited or no recoveries in a pessimistic scenario.
The administrators’ report states formal loan agreements were not entered into for the related-party loans and that, to date, none of those loans have been repaid to the company. The report notes the parties did acknowledge the loans were payable on demand, and legal action has been started to recover the funds.
LMA is insolvent and has total assets of about $31.6 million, but those assets include the loans to Drake whose prospects of recovery are uncertain. Other assets listed include two properties on South Stradbroke Island, four cars (including a Lexus and a Mercedes SL65 AMG), and one leased vehicle. The administrators said LMA’s financial difficulties were linked to excessive loans to related parties and payment of personal expenses of the director and related parties.
BusinessDay previously reported a $16 million loan from the LM Managed Performance Fund to interests associated with Drake. That loan was reportedly secured by a personal guarantee from Peter Charles Drake and by a fixed and floating charge over the assets of Century Star Investments Pty Ltd (CSI). CSI is a Hong Kong company that holds, among other assets, a shareholding in LM Investment Management.
Between 2010 and 2011, while LM’s funds were frozen and the financial position worsened, LMA’s gross income rose by 118% — from $9.5 million to $20.8 million. The administrators said this increase was mainly due to a 200.49% rise in management fees, and LMA also received about $14 million in ‘pre‑paid income’ (management fees paid in advance) from five other LM funds, including the flagship LM First Mortgage Income Fund.
Yes. The article says Peter Drake brought a defamation action against Fairfax Media and the author of the story before the collapse of his $3 billion fund empire; Fairfax is defending that claim. Separately, the FTI administrators have commenced legal proceedings to recover related‑party loans identified in their report.
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