The failed $740 million funds management empire overseen by flamboyant Gold Coast businessman Peter Drake lent $301 million to Mr Drake and his companies, administrators have revealed.
Administrators John Park and Ginette Muller of FTI Consulting said the loans were made from the LM Managed Performance Fund, which operated outside Australian company law.
The related party loans, representing about three-quarters of the $397 million fund, included $17 million loaned directly to Mr Drake, the administrators said.
In a note to creditors, the administrators said they would apply to the Queensland Supreme Court on April 12 to take control of the fund as its receivers.
"MPF has to date been operating as an unregulated fund outside the Corporations Act," the administrators said. "The administrators are continuing to work with ASIC [the Australian Securities and Investments Commission] to address the regulatory concerns."
On Tuesday night, Mr Park said ASIC was concerned that because not all investors in the fund were from overseas, it should have been regulated under Australian law.
He said the fund's manager, LM Investment Management, had not resigned as trustee of the fund, despite a provision in the fund constitution stipulating it must do so upon the appointment of administrators. He denied it would be a conflict of interest to be appointed as both receiver of the fund and administrator of LMIM.
Mr Park and Ms Muller, who were appointed administrators of LMIM on March 19, appear to have backed away from suggestions they would hand the company back to directors under a deed of company arrangement.
It would be "very rare" for a deed of company administration to be entered into in a large and complex failure such as LM, Mr Park said.
He said administrators had been in regular contact with ASIC officers who "haven't indicated at all what their desired outcome is".
In a statement since removed from the LMIM website, Mr Drake, who also addressed LM staff on Tuesday morning, said the decision to enter administration was taken after a "relentless 10-month campaign of alarming and misleading statements to our domestic and international advisers and investors" by rival fund manager Trilogy.
He said administration was the appointment of "independent and professional advisers", and "neither LMIM nor any of its funds are in liquidation or receivership".
Creditors met on the Gold Coast on Tuesday, appointing an 11-member committee of creditors Mr Park said was predominantly made up of financial advisers.
Advisers who tipped their clients into LM's funds are owed $9.9 million in commissions from LMIM.
Its five funds are not in administration but Mr Park and Ms Muller have effective control of them.
Ms Muller defended the lack of direct communication with investors in the administration period, saying she had conducted about 10 phone hook-ups with advisers in the past week.