Westpoint Washup

The Westpoint property portfolio sell-off is now expected to raise more than $100 million '” substantially more than first estimated '” but investors in the collapsed group are unlikely to recoup any significant portion of their losses.

ASIC announced on July 11 that it was seeking to wind up 15 companies associated with Westpoint and its supremo Norm Carey in Perth’s Federal Court. At the same time, Westpoint receivers KordaMentha have sold a prime piece of property on Perth’s Swan River for $49 million.

Mark Korda, a partner of KordaMentha, says: “Up to $24 million from this sale will go to mezzanine fund investors, but it is yet to be determined which investors this includes.” Another Westpoint site, in Ann Street, Brisbane, sold recently for $11 million. A surplus of $7 million from this sum is also expected to be distributed to investors.

Separately, LM Australia has sold a former Westpoint property in Mount Street, North Sydney, for $24 million and is negotiating to sell two more. The building and construction of the property was not financed by mezzanine funds and therefore Westpoint mezzanine investors are unlikely to see a cent.

Sources say that yet another property, the Paragon Arcade, has been sold for $26 million. Again, the proceeds from the sale are unlikely to find their way into the hands of mezzanine investors.

One of the many companies on ASIC’s hit list is Keyworld Investments. Keyworld was a crucial part of Carey’s attempt to continue operating. It is alleged that Keyworld Investments was the intended recipient of a transfer of a $3 million from a Westpoint-linked company in April, before the Federal Court intervened and froze the company’s assets.

Bowesco Pty Ltd is another Carey vehicle to have made the list. Bowesco claims that before Westpoint Corporation’s collapse it was given an option to buy a suburban Perth shopping centre from Westpoint for $100. Carey’s sister, Karen, was the sole director of the group before she resigned last November.

A directions hearing scheduled for August 11 is expected to be a mere formality as an entire series of Carey linked companies are shut down.

At the same time another director of Westpoint, Richard Beck, has managed to avoid having a multi million dollar portfolio of properties placed in the hands of receivers. His lawyer argued on Monday that the properties in question were not his, but in fact owned by a family trust.

Financial planners associated with Elm Financial Services Group have not been so lucky. Graham Ronald Flegg is the sixth planner ASIC has banned from providing financial services of any kind after selling Elm Financial Products.

Elm was first investigated by ASIC in 2005 for promoting Westpoint’s Ann Street development. Elm is believed to have raised $17 million, allegedly by offering unsophisticated investors highly complex debentures.

In a related matter, Westpoint investors are calling for the removal of all board members in the speculative property development fund Paridian, claiming they were not fully informed about the investment.

The investor group is led by Marsha Gusti, a former Westpoint investor who attempted to withdraw her money from the investment after the collapse of the notorious mezzanine fund. She was then told that the only way to redeem the investment was by onselling the notes to a third party.

She says: “After Westpoint, and ASIC’s failure to protect investors we are prepared to exercise our power as shareholders and get our money back”

The cross examination of Norm Carey about his assets will continue in Perth Federal Court on July 24.

ASIC recommends that only experienced investors should get involved with unsecured mezzanine finance schemes similar to those offered by Westpoint. But consumer protection advocate Neil Jenman (property expert and author) is furious about the Westpoint scandal and the system that let it happen.

Jenman has recently met several investors who were taken in by Westpoint. “This notion of the experienced investor needs to be pinned down, needs to be defined,” he says. “You should not be able to participate in such schemes without independent, qualified advice.”