FTI Consulting to seek winding up of LM Investment mortgage fund

Administrators will seek to wind up the $480 million LM First Mortgage Income Fund (FMIF) – one of the investment funds offered by failed Gold Coast Funder fund manager LM Investment Management.

Debenture holders have around $288 million invested in the fund, which was then lent on as registered first mortgages over commercial, residential, industrial, retail and vacant land – most of which is now in default.

John Park and Ginette Muller of FTI Consulting were appointed joint administrators of LM Investment Management at the end of March and in April were appointed responsible entity of the fund.

The fund closed to new investment in March 2009 with LM Investment Management blaming this on “headwinds caused by the global financial crisis”.

In a June update to investors in the fund, administrators said they had been authorised by ASIC to “investigate and preserve the assets and affairs of the fund and to either “wind-up the scheme” or “transfer the functions of the responsible entity to an entity not externally-administered”.

“Whilst we have now reached our view that it is in the best interests of members to formally wind up the FMIF, we have given an undertaking (and the Court may order) that we not take any steps pending the [court] hearing on 15 July 2013, to formalize the winding up,” said the administrators.

The July 15 court hearing is to determine whether FTI Consulting remain as responsible entity or fund management group Trilogy (which controls other LM funds) be appointed as the replacement responsible entity

At the time the fund closed, there were 55 loan assets.

Prior to its collapse, LM Investment management secured the sale of 28 loans leaving a balance of 27 loans totalling $481 million.

The accounts reveal provisions for impairments of $146 million leaving a net balance of $334 million, according to its most recent annual report to June 2012.

Of the $480 million lent out, $216 million was secured against assets under construction with the loan to be repaid through “cash flows of the project”.

Four of the loans account for 10% of the fund‘s exposure each and total

Management fees over 2012 were $2.47 million and were $9.1 million in 2011, the annual report shows.

FTI Consulting says that while “technically” a wind-up has not commenced actions taken by LM Investment management following the closure of the fund in 2009 would be no different to a winding-up of the fund.

“The only assets of FMIF are loans which are secured by mortgages. Most of the loans are in default.

“The function of LM is to realize those loans – it does this by taking the appropriate action to enforce its rights under those loans or sell those loans.

“As a result of the global financial crisis LM has been unable to make new loans on acceptable terms. Accordingly, in accordance with the “go forward” strategy which was announced by LM on 20 December 2012, when loan moneys are recovered they are used to pay FMIF liabilities with the surplus being distributed to members.

“Thus while a technical wind up of FMIF has not commenced, the action in relation to FMIF loan assets and moneys recovered which is being taken by LM would be no different if a technical wind up had commenced,” said FTI Consulting.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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