Peter Drake gave himself a $26 million loan before his mortgage fund empire, LM Investments, collapsed in March.
Adding this to other loans, including a $16 million loan 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 commenced to recover the money.
"We have estimated that there will be nil recoveries in pessimistic scenario, with recoveries unknown in optimistic scenario," the administrator's 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," the administrator's report said.
"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."
The revelation of the Drake loans presents further anguish for the investors in his 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.
In 2010 and 2011, as LM's funds were frozen and as its 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 $31.6million, 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, and it also owns four cars and leases one, including a Lexus and a Mercedes.
Also included in the report on LMA is the administrator's investigation of Drake's personal financial position.
Property searches showed Drake owned properties in Maldon, Victoria, and Russell Island, Queensland, and the Drake 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. The businessman's 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.
LM has two shareholders: one being CSI - which holds 17 ordinary shares - and the other is Oceanboard Pty Ltd as trustee for the Drake Management Trust (with 18 ordinary shares).
Peter Drake is the sole director of Oceanboard and it is likely that Drake Management Trust may be the only shareholder of CSI, say sources.