Kiwi fund manager's empire in ruins

PETER DRAKE: The loan was "secured by a business valuation which as at today is A$107m".
PETER DRAKE: The loan was "secured by a business valuation which as at today is A$107m".

Expat New Zealand fund manager Peter Drake, whose property mortgage fund empire is in ruins, says he can't pay back the more than A$26 million (NZ$30m) loan made to him by one of the companies he ran.

The $26m loan to Drake was revealed in a report on the affairs of LM Administration (LMA) by FTI Consulting, the administrators to Drake's stable of companies.

Once the LM group and the funds it ran were held in high regard by investors in New Zealand, who collectively sunk about $140m into its first Mortgage Income Fund, which was frozen in late 2009 after the loans it invested in ran into trouble.

FTI's report told creditors that the loan to Drake was undocumented and the largest among $30.2m they identified as payments to related parties of Drake and to Drake himself. The report doesn't state exactly when the loans were made but said it was in the period from March 2011 to March this year.

The report said: "Formal loan agreements were not entered into for any of these loans and to date none of these loans have been repaid to the company, however the parties did acknowledge that they were repayable on demand."

And, FTI added of the loan: "Should this loan account be unable to be repaid, the payments would potentially be unreasonable director-related transactions ... "

Drake acknowledged the existence of the $26m loan to Fairfax Media and confirmed it was recallable on demand. But he said it was a tax-advantageous way of distributing profits to him, and that it would have been repaid out of future profits.

Drake said: "The $26m was profit over a number of years distributed to me in the form of a company loan. With a view to be repaid out of 2013 and 2014 profit."

He also denied that the loan was undocumented, saying the documents might not have been in the place FTI looked for them.

Drake said he didn't have the ability to repay the loan and that he had used the money to make principal and instalment payments on loans held by funds the LM group managed.

Drake, who spent his early years in the west Auckland suburb of Henderson before moving to Australia, disputed some of the other claims made in the FTI creditors report.

"Any report without consultations or clarification from me will carry the risk of a defamation charge by me against FTI."

He cited the example of the administrators telling creditors in the report that he owned a speed boat and a Melbourne property, neither of which he said he had ever owned.

"Since the day I appointed FTI, March 19, FTI have not consulted nor corresponded with me with regards to understanding any aspect of the business. FTI did not advise me of the creditors meeting, neither have they sent me the copy of the creditors report and they certainly did not discuss any of the context with me prior to publishing the report."

Since the First Mortgage Income Fund was frozen in late 2009, investors have seen the unit price slashed from $A1 to 59 Australian cents and they are being warned to brace for further falls.

They have also had a confusing time with LM and a rival fund manager, Trilogy, trading insults and accusations in a bitter fight to control the fund as well as the LM-run Managed Performance Fund.

The financial advisers who recommended LM to Kiwi investors largely backed Drake and LM in that tussle.

That battle ended with liquidators KordaMentha now in charge of the Managed Performance Fund, and its investors told to expect little of their capital back.

A legal fight to determine who gets to wind up the First Mortgage Income Fund is awaiting only a reserved judgment.

FTI told Fairfax Media last week that it will also be seeking to have LM Administration sister company LM Investment Management wound up.

The administrator also said it had prepared a draft report on the way the LM Administration had been run to deliver to the Australian Securities and Investments Commission. It said: "A draft report to ASIC has been prepared however will be held subject to the appointment of a liquidator."