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Wellington Capital PIF/Octaviar (MFS) PIF

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Re: Octaviar MFS Premium Income Fund PIF

communique said:
Thank you Mary for Above.

An article in The Australian today advises ASIC will sue KPMG on behalf of Westpoint investors.
Click to expand...

In a separate action that began last October, ASIC is suing KPMG for $200 million, in an attempt to compensate Westpoint investors for their losses.

KPMG said the undertakings would not affect their “vigorous defence” of the civil action.

This measely amount would not even put a dent in KPMG's worldwide insurance cover. I don't think the ASIC/Westpoint claim would affect our PIF KPMG class claim. ASIC took over the Westpoint debacle because it was in a bigger mess than ours. They considered the PIF was viable and that it had a management that was voted in by its investors.

We now have a strong class action via IMF Australia with over 2,200 participants - it would be most unlikely that ASIC would try to take over this well run class. ASIC'c view is, what is for the best interests of investors - intervening in our class would not be in our best interests. If they were thinking of doing anything, they certainly would consult with our lawyers and IMF first. Nothing like that is in the works to the best of my knowledge and I strongly doubt that it ever will be.
 
Re: Octaviar MFS Premium Income Fund PIF

Here is a link to the ASIC website for those interested in the details of the 'audit conduct' performed by KPMG employees relating to Westpoint Group companies::www.asic.gov.au
 
Re: Octaviar MFS Premium Income Fund PIF

breaker1 said:
In a separate action that began last October, ASIC is suing KPMG for $200 million, in an attempt to compensate Westpoint investors for their losses.

KPMG said the undertakings would not affect their “vigorous defence” of the civil action.

This measely amount would not even put a dent in KPMG's worldwide insurance cover. I don't think the ASIC/Westpoint claim would affect our PIF KPMG class claim. ASIC took over the Westpoint debacle because it was in a bigger mess than ours. They considered the PIF was viable and that it had a management that was voted in by its investors.

We now have a strong class action via IMF Australia with over 2,200 participants - it would be most unlikely that ASIC would try to take over this well run class. ASIC'c view is, what is for the best interests of investors - intervening in our class would not be in our best interests. If they were thinking of doing anything, they certainly would consult with our lawyers and IMF first. Nothing like that is in the works to the best of my knowledge and I strongly doubt that it ever will be.
Click to expand...

The above are simply my unprofessional opinions, before making any decisions on joining the IMF/KPMG class action or not, prospective participants should get whatever professional advice you can from:

Tim McLernon [as your first point of contact]
IMF Australia
Level 5, 32 Martin Place SYDNEY NSW 2000
Telephone: 02 8223 3567
M +61 414 589 531
D +61 2 8223 3576
F +61 2 8223 3555
OR click on http://www.imf.com.au/contact.asp and send a website direct email

If ASIC advice is required contact ASIC on phone 1300 300 630
or via on line email on: http://www.asic.gov.au/asic/asic.nsf/byheadline/FAQs+-+main+page?openDocument.

If further legal advice is required, contact Carneys Lawyers on:
Carneys Lawyers Level 5 70 Castlereagh St SYDNEY NSW 2000 DX 998 Sydney
P: (02) 8226 5555
F: (02) 8226 5556
Email: law@carneys.com.au

OR obtain your own private legal advice

If anything is bothering you about the class action or the contract just contact the above beginning with IMF first - be general or be specific - these professionals are there to serve you. They are under considerable pressure to advise you honestly and accurately. Please take advantage of these great services now available to PIF investors.

I was advised by IMF Aust. that IMF will do another mail out "with the current [updated] database and prior databases" to the 10,000 PIF investors as a reminder to get their KPMG agreement application in.

Also that when appropriate, every class action applicant will receive regular updates from IMF.
 
Re: Octaviar MFS Premium Income Fund PIF

Duped, this is from the Wellington disclosure statement to the NSX:

PIN
Size of Unitholding parcel No. of Unitholders Total Units

1 – 1,000 - -
1,001 – 5,000 203 1,014,916
5,001 – 10,000 1,230 10,035,525
10,001 – 100,000 7,437 286,708,888
100,001 and over 1,517 457,436,213

TOTAL 10,387 755,195,542

I would guess 2,200 represents around 60-70% of the capital held.
 
Re: Octaviar MFS Premium Income Fund PIF

marcom said:
Duped, this is from the Wellington disclosure statement to the NSX:

PIN
Size of Unitholding parcel No. of Unitholders Total Units

1 – 1,000 - -
1,001 – 5,000 203 1,014,916
5,001 – 10,000 1,230 10,035,525
10,001 – 100,000 7,437 286,708,888
100,001 and over 1,517 457,436,213

TOTAL 10,387 755,195,542

I would guess 2,200 represents around 60-70% of the capital held.
Click to expand...

Duped - Marcom's guess is probably about right, as I suspect most if not all of those top end investors [and a lot of others] hv signed up. I don't think we will actually know percentages/values until after the IMF invitation to join the class action is closed
 
Re: Octaviar MFS Premium Income Fund PIF

lcee said:
Marcom,

Thank you for your reply. However, my reading of clause 10.3 is that the Applicant (us) has to pay the lawyers the market value of a non-monetary component of the 'Resolution Sum so received'. It does not specify 'received' by whom. Is this clause meant to cover the situation where, for example, shares are used as part settlement and are paid directly to each applicant rather than to the lawyers? If so, OK but if it covers the situation where shares are given to the lawyers but the applicants have to pay the market value and are then allocated their proportion of the shares, not OK by me.

regards
lcee
Click to expand...
Hi Icee, I referred your question to Mr John Walker of IMF who has kindly sent the following response:::: "Icee asks a good question. IMF will not rely upon clause 10.3, but rather the sale of the property."

Hope this helps, Regards, Seamisty
 
Re: Octaviar MFS Premium Income Fund PIF

Got a letter from our EX-financial advisor today saying that if we have not already joined the class action we should "seriously consider IMF's proposal by obtaining an information pack". Looks like the financial advisors are working to get the remainder of the investors in so they can get their fee payments back.
 
Re: Octaviar MFS Premium Income Fund PIF

Tomorrow in the Brisbane Supreme Court costs judgements on the Octaviar cases:

RE: OCTAVIAR LIMITED
Justice Philip McMurdo
Court 15
Floor 3 9:30 AM
(Costs Judgment)

RE: OCTAVIAR ADMINISTRATION PTY LTD
Justice Philip McMurdo
Court 15
Floor 3 9:30 AM
(Costs Judgment)

FORTRESS CREDIT CORPORATION (AUSTRALIA) II PTY LIMITED -V- OCTAVIAR LIMITED & others
Justice Philip McMurdo
Court 15
Floor 3 9:30 AM
(Costs Judgment)
 
Re: Octaviar MFS Premium Income Fund PIF

Seamisty,

Thank you for passing on Mr Walker's response. I did e-mail Tim at IMF who responded along similar line to Mr Walker. However, I asked two questions and Tim's response was not specific. I was about to request clarification but you now have that for me.

Looks like there is a good response so far to the class action.

Lcee
 
Re: Octaviar MFS Premium Income Fund PIF

marcom said:
Got a letter from our EX-financial advisor today saying that if we have not already joined the class action we should "seriously consider IMF's proposal by obtaining an information pack". Looks like the financial advisors are working to get the remainder of the investors in so they can get their fee payments back.
Click to expand...

So would I if I were the advisor. The more I get back through the class action the less likely I'm going to sue my advisor.
 
Re: Octaviar MFS Premium Income Fund PIF

The outcome of the Octaviar costs decision today is at

http://www.sclqld.org.au/qjudgment/2009/QSC/273

Here are the relevant paragraphs relating to Wellington:

[3] With one exception, none of the respondents has argued that the Public Trustee should not have some order for costs. But for the most part, they argue that he should have them out of the winding up of the two companies as “costs in respect of the application for the order [for winding up]” under s556(1)(b) of the Corporations Act 2001 (Cth). The exception is an argument for Wellington that the Public Trustee pay Wellington’s costs in relation to certain allegations made against Wellington in the Public Trustee’s points of claim. These were mostly allegations as to matters which a liquidator of Octaviar Ltd would wish to investigate. I accepted that some of those matters would be likely to be investigated by a liquidator. As to the transaction pleaded in paragraphs 53 and 54 of the points of claim, I found that a liquidator would not be obliged to investigate that transaction
but might wish to do so.2 The matters pleaded in paragraphs 58 to 72 related to the disposal of the responsible entity for the PIF, upon which Wellington’s argument prevailed.3 Paragraph 80 of the points of claim made allegations about the amendment of the MFS Support Mechanism, about which I found that a liquidator would wish to investigate the circumstances of the amendment.4 Paragraphs 102 and 103 pleaded one of several ways in which Wellington was said to be a party with an interest in avoiding a liquidation of these two companies. It was a question which I found unnecessary to discuss, because for other reasons which were
discussed, Wellington clearly had an interest in avoiding a winding up and
consequent inquiries by a liquidator.5 The Public Trustee was successful, for the most part, in arguing that there were matters which a liquidator would wish to investigate in relation to Wellington. The fact that he was not wholly successful should not result in an order for costs against him. More generally, Wellington should not have an order for costs against the Public Trustee in the circumstance where Wellington also made extensive submissions against these applications, which went far beyond the transactions in which Wellington had been involved. Overall, Wellington was quite unsuccessful in its response to these applications.
The bold submission by Wellington that it should have some order for costs against the Public Trustee must be rejected.

[7] The positions of OPI Pacific Finance Pty Ltd and Wellington Capital Limited may be considered together. Neither made any substantial argument as to the operation of the Octaviar Limited deed. On the face of things, each is a large creditor with an interest as such in whether the deed remained. Each was concerned to rebut the Public Trustee’s case that a liquidator would wish to investigate matters concerning it and its debt. In those circumstances, I am not persuaded that it would be just that
it be ordered to pay the Public Trustee’s costs. Nor am I persuaded that it should recover its costs in the winding up. Accepting that the approach of Finkelstein J in the above passage will in many cases be appropriate, in this case each of these parties had another reason to oppose the termination of the deed, which was that it would be likely to be subject to a liquidator’s investigation. In other words its interest was not purely as a creditor in the proper application of the available funds.
 
Re: Octaviar MFS Premium Income Fund PIF

Thanks Marcom, Clear as mud to someone like me who is unfamiliar with legal matters!!!! Hopefully some one can translate it into something less complicated. Cheers, Seamisty
 
Re: Octaviar MFS Premium Income Fund PIF

Michael's Elysian Fields Fit for a king
By TIM HUNTER and ROB STOCK - Sunday Star Times::Last updated 05:00 23/08/2009
Elysian Fields, the Gold Coast estate of MFS founder Michael King, had a clubhouse for its polo-playing owner "decked out like something out of Arabia", according to one visitor.

The $A20m property, inland from Surfer's Paradise, was a highly tangible status symbol for King, whose stated ambition was to run one of the top 50 companies in Australia.

For a while, he looked like making it. His business had a market capitalisation of $A2.2 billion in 2007. Now, not even the company's name remains and its remnants gather under the moniker Octaviar.

For New Zealand victims of his hubris the cost has been huge when the whole sorry enterprise collapsed last year the New Zealand company, MFS Pacific Finance, owed investors $454 million. So far secured debenture holders have got back just $57m and the prospect of further recoveries is receding into the distance.

It's New Zealand's biggest finance company failure after Hanover Finance and Bridgecorp, but hugely more complex. This month, after a court ruling in Australia on July 31, the shaky moratorium agreement voted in by Kiwi investors last May looks certain to be replaced by receivership or liquidation.

Financially this is not good news for investors, but there is a silver lining liquidators may finally untangle the web of related party deals and accounting trickery to reveal what, and who, wrought such billion-dollar devastation.

The business began modestly enough. King and business partner Philip Adams were lawyers at McLaughlins Solicitors on the Gold Coast where they established a small funds management business called McLaughlins Financial Services, later spinning the business out of the law firm and acquiring several property management rights, including that of the then-listed MFS Leverage Investment and Securities Trust in 2001. In January 2005, they merged the trust with the funds management business to create MFS Ltd. Thereafter they made a string of acquisitions, including accommodation businesses BreakFree and S8 that were to become the foundation of travel business Stella.

How MFS made money was a mystery to many people, but make money it did. An analyst with ABN Amro Morgans, Belinda Moore, said in 2007: "They are high-calibre people who always exceed their promises. So we are very confident about them."

A former chief executive of S8, Chris Scott, admitted to business magazine BRW: "At first I did not understand MFS so I didn't want to be involved with it. But as I listened to their story and it became more transparent to me, I became more understanding and more comfortable with them."

Ad Feedback The business model appeared similar to that of Macquarie Bank in its focus on being a manager of other people's money, creating a range of investment funds from which it extracted fees. What some observers struggled with, however, was the extent of related party dealing which made it hard to keep track of assets and liabilities as they were shuffled around the group.

This was a major factor in the demise of its New Zealand arm, MFS Pacific Finance, and its related financial advisory firm, Vestar.

Pacific Finance was born from a much smaller finance company taken over in 2003 by MFS, which was keen to expand into New Zealand after stunning growth in Australia. In December 2006 MFS added Vestar, acquired from its Ferrari-driving founder Kelvin Sims, which was already selling debentures from Pacific Finance.

The idea was simple Vestar would channel investor cash into Pacific Finance, which would pass it on to MFS in Australia for use in lending to property developments in Queensland and New South Wales. A 2007 prospectus showed loans of $109m in NSW, $94m in Queensland and $22m in Auckland. Tens of millions of dollars of these loans were bought from, or sold to, other parts of the MFS group. The company also fed money into other MFS channels $22m, for example, was invested in units of funds managed by MFS.

Disclosure of related party transactions, the heart of the financial alchemy in MFS, took up nine pages of the document.

In July 2006 MFS agreed a "put option" deal with Pacific Finance whereby the New Zealand company would have the right to sell any loans more than three months overdue back to the Australian company at face value. The deal also covered investments such as the funds units if the market value fell below the price Pacific Finance had paid.

This arrangement formed a big part of the sales pitch to attract investors to Pacific Finance, who understood that its financial future was literally guaranteed by its huge Australian parent, a guarantee that came at a cost of millions each year.

Pacific Finance boasted: "Notwithstanding the protection provided by the company's prudent lending and investing practices," it had "transferred all credit risk" to its parent by way of the put option agreement.

That sounded great to investors, who, perhaps encouraged by the presence of economist Donal Curtin on Vestar's investment committee, were accepting interest of 9.5% for a 12-month term deposit as it turned out, a paltry return given the risk compared to the 8.5% they could have been drawing from AAA-rated Rabobank.

What wasn't in the sales pitch, however, was that the put option allowed MFS to turn bad loans into good, as if by magic, by transferring them to Pacific Finance.

As at September 2007, Pacific Finance recorded loans of $37m more than two years overdue, but still classed as not impaired because they were covered by the put option. The bulk of these loans were acquired at face value in the previous six months from related parties in Australia.

This was bad enough, but when the MFS group collapsed under the weight of its debts in January 2008, it was the tip of the iceberg.

Not only was MFS effectively guaranteeing Pacific Finance through the put option, it was also publicly committed to providing cash flow to support the finance company's repayments to investors commitments of up to $27m, $32m and $22m, in January, February and March.

But MFS didn't have the money it was also due to repay corporate financier Fortress $189m in February, and was trying to raise money from a float of travel group Stella. On January 18 the Australian sharemarket suddenly realised MFS was much more heavily in debt than was previously thought and the share price went into free-fall.

Interest due to Pacific Finance investors on January 31 went unpaid and MFS, it rapidly became clear, was in no position to make good on the promises it had so expensively sold to Pacific Finance.

By the time investors were ready to vote on a moratorium deal offering an early repayment of $23m, they knew there was a massive black hole in the finance company's loan book. Of $476m of loans and investments, just $122.8m looked recoverable, they were told.

Although directors Jason Maywald and David Anderson signed financial statements in December saying 27% of loans by value had security of a first mortgage over real property, moratorium documents revealed the real picture was just 13%.

Maywald, who joined the firm in December 2006, has not spoken publicly about what happened, other than in veiled terms.

He told the Sunday Star-Times in May last year that there had been some "issues in the origination of the loan book at Octaviar" and "it appears some loans haven't got the position we would have liked".

As it transpired, a common practice was for Pacific Finance to provide top-up mezzanine finance to a property development, taking a second mortgage behind the first lender, a related Australian MFS fund called the Premium Income Fund which had about 10,000 investors.

All their lending was managed centrally by MFS in Australia.

To complete the circle, Premium Income Fund also lent huge sums on an unsecured basis to Pacific Finance, a portion of which funded debenture redemptions for Kiwi investors.

Such tangled relationships mean MFS-related companies have a Gordian Knot of claims against each other and the parent company, further complicated by the claims of third parties such as Fortress.

When the original moratorium deal was voted in last May, it looked like all those parties would agree on an orderly disposal of remaining assets, but hopes of a orderly wind-up have been dashed by court action from one creditor, the Queensland Public Trustee.

It was this that led to a court ruling on July 31 forcing Octaviar into liquidation and triggering an "event of review" in the moratorium deal. Other lawsuits are in train, including a class action against the Premium Income Fund's auditor, KPMG, alleging the fund's loans to Pacific Finance were illegal under related party rules in the Corporations Act and KPMG failed to alert regulators to this fact.

For Pacific Finance investors, there are only two routes to further recoveries. One is enforcement of the put option against Octaviar, the other is a damages claim against Octaviar Administration alleging negligence and mismanagement of the loan book. Both claims are for $461m.

Louise Edwards, CEO of Pacific Finance's trustee Perpetual, says she has asked Maywald, now based in Australia, for further information before deciding whether to appoint a liquidator to the Kiwi company.

"It's a complicated matter," she told the Star-Times last week. "It's not something we want to rush into."

Meanwhile, precious little is left in the Octaviar kitty to fight over. One of its biggest assets listed in December by then-administrator Deloitte was a 35% stake in Stella valued at $A128m. It was sold a few weeks ago for just $A3.5m.

As for King, he still has Elysian Fields, although according to one media report in Australia, its holding company, Canungra Property, is subject to a charge held by a New Zealand firm Pacific Finance
 
Re: Octaviar MFS Premium Income Fund PIF

selciper said:
Some salient points about auditors are made in this UK Telegraph article.

http://www.telegraph.co.uk/finance/...-accountants-PwC-over-feeder-fund-audits.html
Click to expand...

[[[As auditors, PwC would have been required to check that the treasury notes existed. However, Madoff was able to conceal any shortfall because he was not just the "execution agent" for Fairfield Sentry's investment strategy but also the custodian of the money. As such, PwC would have received assurances from Madoff that the treasury notes existed.]]]

Hello Selciper,
Salient points indeed. I took the liberty of extracting this passage from the article with my bolding for emphasis on the role of "custodian".
Shadows of Perpetual Nominees in doling out funds from our fund without verified security. Painful.
 
Re: Octaviar MFS Premium Income Fund PIF

seamisty said:
Thanks Marcom, Clear as mud to someone like me who is unfamiliar with legal matters!!!! Hopefully some one can translate it into something less complicated. Cheers, Seamisty
Click to expand...

From my late night, beer tinted, single reading:

PTQ won the case on 31 July so it went back to court to get the costs it incurred in winning the case paid for by someone else. Furthermore, it wanted to get paid out of the pockets of those who opposed it - rather than getting paid out of OCV's dwindling cash.

McMurdo ruled that PTQ should get paid. But paid from OCV cash and not out of the pockets of those that supported the Deed of Company Arrangements. Supporters included Fortress, PIF, OPI Pacific etc. Deloitte have immunity.

WC was faced with potentially having to pay money out of its own pocket (or our pocket) to PTQ for some of PTQ's costs. Consequently WC showed up in court prepared and countered PTQ arguing that in his decision of 31 July McMurdo knocked back some of PTQ's allegations against WC and hence PTQ should pay some of WC's costs.

McMurdo had already decided that costs were to be paid out of OCV cash so WC's submissions were redundant. But McMurdo ruled against WC's argument.

Seems this whole costs court decision was simply enforcing well established law.

That about right?

This whole recent saga and its cost to us PIF investors seems to me, a lay observer, to be an excellent example of legislative failure. Failure by the legislators to anticipate how the finance/account/auditor pack would push the law around. Or monitor and fix the way the law was being applied in practice. And failure by the individual players like Deloitte from stepping out of its comfort zone, leading by example and protecting its client from erroneous pack mentality. Unless of course McMurdo is wrong whereby Deloitte would be vindicated.

Basically, back in the March decision McMurdo said the way the pack interpreted the law was wrong because in the Octaviar case, the pack interpretation couldn't satisfy what must have been the INTENT of the law. (If you've ever done a course in law then you'll remeber learning about 'purposive construction'; probably in your first day)

Had Deloitte viewed the law the way McMurdo viewed it, then Deloitte might have discounted Fortress claim of being a secured creditor and suggested Fortress be required to pay back some $10s of millions. There could then have been an extra approx $50m to divide amongst all the unsecured creditors AND we may not have needed to endure the last 12 months of expensive litigation.

If your interested in the fuss McMurdo's March decision has created see http://www.thenewlawyer.com.au/article/mallesons-allens-unite-on-octaviar/479534.aspx

Who pays for this clarification of the law? Government? No. Professional fraternity? No. We pay.
 
Re: Octaviar MFS Premium Income Fund PIF

Tomorrow in the Brisbane Supreme Court of Appeal:

Re: OCTAVIAR ADMINISTRATION PTY LTD

Justice Holmes
Justice Muir
Justice White

Appeal Court
Floor 5 10:15 AM
(Appeal)

This could be the long awaited Fortress appeal hearing.
 

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