Liquidators taken off LMIM fund wind-up

The Queensland Supreme Court has found a conflict of interest in the winding up process of the LM First Mortgage Income Fund, heeding the corporate regulator’s call to have external receivers appointed.

In a statement released on Friday, the Australian Securities and Investments Commission (ASIC) said “The future for investors in LM First Mortgage Income Fund (FMIF) is more certain after a court yesterday appointed a receiver to it”.

According to the statement, David Whyte of BDO has been appointed as the official receiver, taking over responsibility for the wind-up from the appointed FTI Consulting liquidators of the fund’s former responsible entity LM Investment Management (LMIM).

In ordering the appointment, Justice Dalton said having the appointed administrators also handling the winding up of LMIM’s funds presented a conflict of interest, finding in favour of ASIC’s previously voiced concerns.

“My view is that they have preferred their own commercial interests to the interests of the fund. This is demonstrated in the conduct ... in relation to the 13 June 2013 meeting; their dealings with ASIC, and their conduct with this litigation,” Dalton J said.

“It extends to the point where both administrators have sworn to matters which they either conceded were wrong on cross-examination ... or in my view are not consonant with reality ... In a winding-up where conflicts may well arise, and may involve questions of some complexity, I feel no assurance that the current administration would act properly in the interests of members of the fund in identifying those issues or dealing with them.

“In my view, that makes it necessary that someone independent have charge of winding-up FMIF.”

Last month, ASIC revealed it was seeking court orders to have external receivers appointed to the FMIF, offering PricewaterhouseCoopers as an appropriate external receiver.

ASIC commissioner Greg Tanzer said the intervention is intended to allow the winding-up process to proceed efficiently and effectively to achieve “maximum return for investors”.

“It is ASIC’s view that the protracted litigation surrounding the FMIF is not in the best interests of investors and wishes to see the matter resolved as soon as possible,” Mr Tanzer said.

In March it emerged that the $3.1 billion LMIM was facing administration.

An LMIM spokesperson told ifa the authorised representatives operating under its Australian Financial Services licence (AFSL) would not be affected by the entering into administration, as they do not “write any business for [its] funds”.