by Susan Edmunds
Australian funds manager LM, started by New Zealander Peter Drake and which claimed to have A$3 billion under management, went into voluntary administration last month.
The LM First Income Mortgage Fund has been frozen since 2009 with $100 million of 2750 New Zealanders' money inside it.
FTI Consulting was appointed as administators of LM on March 19.
It then sought to be appointed receivers of the managed performance fund but was rejected by the court because FTI was seen to be conflicted due to the fact it was appointed by LM in the first place. "The unitholders wish for the performance of the trustee in its management of the fund, and lending so much of the funds' assets to related parties of one director, to be properly investigated. This may result in either a claim by the trust against LM or LM Administration.It is undesirable that if that claim eventuates, [John] Park and [Ginette] Muller should be on both sides of the fence."
KordaMentha was handed control instead.
Fund manager Trilogy, which was appointed responsible entity of the wholesale fund in November 2012, and has 20% of the units in the income fund, is today asking the Supreme Court to make it the responsible entity of the First Mortgage income Fund.
“There is a fundamental difference between the role of a responsible entity acting, as it must, in the best interest of unitholders, and an administrator, or, for that matter, a receiver who has a starting position of acting for the creditors and shareholders of the fund manager (LMIM and LMA) who act purely on a fee-based profit-driven basis as they are not unitholders in the fund.”
Trilogy said it would then call a meeting within 90 days to become the permanent responsible entity.
But LM wrote to investors saying the power of the Court to appoint a replacement manager should not be exercised in the circumstances and called a meeting of unitholders for May 30 to decide either way.
At least 50% of the total votes that may be cast by members entitled to vote on the resolution will be required to remove LM and instate Trilogy.
LM said it would encourage investors to vote against Trilogy taking over. “LM expects that if it remains as manager investors will recover capital distributions faster and in a greater amount.”
New Zealand Trilogy representative David Jansen said investors were confused. “Why is FTI now trying to endorse LM as the manager that should remain in place while they wind down the book?”
He said FTI was too conflicted to remain in place. “If wrongdoing is found, we need unfettered access to the books. LM is not going to sue itself.”
He said Trilogy would be able to put some distrance between FTI and LM. “If there is a case to be answered, that’s a real opportunity for unitholders to get some income. A legal recovery will make some meaningful impact to unitholders’ final recovery.”
“[Today] is the key day, whether they appoint a receiver… or they allow LM to call a meeting that’s unwinnable. Unitholders just want their money back in a timely manner.”
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