Irregularities suspected in LMIM's Maddison Estate mortgage fund: reports

The administrators of collapsed mortgage fund manager LM Investment Management (LMIM) are reportedly investigating possible irregularities in the running of the $401 million fund that predominantly invested in the Maddison Estate residential development at Pimpama on the Gold Coast.

The collapse of the fund manager has left small investors and overseas investors facing cumulative exposures totalling around $740 million.

All funds managed by LMIM have been frozen with John Park and Ginette Muller appointed as voluntary administrators on March 19 2013.

A customary first meeting of creditors will take place today on the Gold Coast, but the administrators from FTI Consulting say it is a “procedural” meeting with "no details of a solution" raised for investors.

Overseas-based creditors will have the opportunity to dial in to the meeting.

The $1 billion Maddison Estate, with its landscaping features designed and promoted by celebrity gardener Jamie Durie, was the primary investment vehicle for the LM Managed Performance Fund, which invested $234 million in the project via second mortgages – representing 60% of the fund.

Suncorp had provided a $22 million first mortgage over the project, with the loan expiring on March 31.

A circular issued to creditors by the administrators reveals that Australian commercial loans comprise 96% of the fund with direct property making up just 0.8% of its assets.

The fund was open to overseas investors introduced via a financial intermediary.

“Management has advised it is not uncommon for a special purpose vehicle to be incorporated to hold the registered title to the development site.

“A first mortgage is then secured against the development site for part or all of the build cost and the fund takes the second ranking mortgage behind the financier for the build,” says the circular to creditors.

The Australian Financial Review reports that FTI Consulting will apply to the Queensland Supreme Court to be appointed receiver of the LM Managed Performance Fund, giving FTI Consulting greater powers over the potential sale of assets.

At today’s creditors meeting, voluntary administrators will report on the company’s business, property, affairs and financial circumstances, and on the three options  available to creditors.

These are:

• end the voluntary administration and return the company to the directors’ control

• approve a deed of company arrangement through which the company will pay all or part of its debts and then be free of those debts, or

• wind up the company and appoint a liquidator

A second creditors meeting to determine the fate of LMIM is due within 25 or 30 business days of the appointment of voluntary administrators, but the AFR reports that FTI Consulting are expected to apply for an extension until July 25 due to the complexity of the funds managed by LMIM.

FTI Consulting has set up a dedicated website covering the administration of LMIM.