Melbourne-based property investment firm PE Capital Funds Management likely traded while insolvent before collapsing and leaving creditors nearly $12 million out of pocket, with nearly no assets for liquidators to sell and less than $200 in company bank accounts, a liquidator says.
PE Capital Funds Management was forced into liquidation in February after the Federal Court sided with the corporate regulator, ruling the firm breached the law by operating managed investment schemes without an Australian Financial Services Licence, and engaged in misleading and deceptive conduct. The Australian Securities and Investments Commission’s action was not defended.
An artist impression of a proposed Hyatt hotel in Springvale, which was to be developed by PE Capital but never built.
PE Capital Funds Management raised money from investors through both registered and unregistered investment schemes. These funds were put into special purpose vehicles (SPV) that managed different property developments in Victoria. PE Capital’s source of income was management fees from the SPVs.
The schemes raised money for acquiring and developing vacant land on the outskirts of Melbourne and Geelong for the potential operation of businesses in the future such as childcare centres, service stations, fast food outlets and convenience stores.
In February, the court appointed Andrew Fielding, BDO national leader of business restructuring, as PE Capital Funds Management liquidator. He was also tasked with winding up the various investment schemes.
BDO replaced administrators Cor Cordis, who the directors appointed in October last year, after ASIC took its wind-up action to court in May 2021.
“My preliminary review of the internally prepared management accounts indicates that the company and schemes traded whilst insolvent,” Mr Fielding wrote in his three-month statutory report to creditors.
Mr Field said there were significant increases in interest payable on the balance sheet from the 2017 financial year through to 2021, demonstrating the schemes were unable to pay investor interest on time.
“This is indication of insolvency, because the schemes were unable to pay its debts when due,” he said.
He also noted a depleting asset position in the 2021 financial year due to the write-off of investments in the SPVs as properties were sold and no recovery of investment was obtained.
“In the periods [from the 2018 financial year to the 2021 financial year], it appears that the income from the SPVs was not being received and subsequently accrued over the periods… recorded on the balance sheet,” Mr Fielding wrote.
“The SPV income was the sole income of the company and schemes, which indicates that the company and schemes did not receive any cash income over the periods.”
Mr Fielding wrote he would be submitting the results of his investigations to the Australian Securities and Investments Commission.
The liquidator report, issued May 6, stated further investigations and a public examination of directors is required before BDO can determine whether there is a potential insolvent trading claim.
However, Mr Fielding noted creditors can pursue a claim against a director for insolvent trading with permission of the liquidator if they contact BDO within 14 days of the report being issued.
According to the investigations, no physical assets are owed by PE Capital Funds Management or the various investment schemes, other than a small amount of cash in the bank. PE Capital Funds Management is owed management fees by the investment schemes, according to its directors, although Mr Fielding questioned whether they could actually be collected.
Around $195 was left in total across five company bank accounts at ANZ and Commonwealth Bank.
BDO’s investigations are ongoing as the liquidator attempts to track where money raised ended up.
“I understand that the company and schemes were reliant on the payment of investment interest and management fees from the SPVs. The directors have advised that the inability to collect the interest and fees from the underlying SPVs was due to the financial difficulties of the SPVs, which resulted in the failure of the company and schemes,” Mr Fielding wrote.
“On 7 January 2021, the directors issued letters of demands to Barnes Capital as controller of a number of property projects and trustee of the underlying SPVs that the schemes invested in, for payment of the principal and interest amounts the SPVs owed to the schemes.”
Mr Fielding said the directors – Sam Osborne and Simon Day – issued two further letters in June and September 2021 regarding payment of principal and interest,
“I have issued Barnes Capital a notice to provide all books and records but have only received a limited response,” he wrote.
Barnes Capital Projects’ sole director is Martyn Barnes, who was formerly chairman of PE Capital, a separate but related entity to PE Capital Funds Management. Barnes Capital Projects is owned by Spectra Financial Group, which Mr Barnes owns. Mr Barnes is not a director of PE Capital Funds Management, although regulator documents indicated he previously served on the board between 2015 and 2016.
“Mr Barnes has advised that he does not currently reside in Australia,” Mr Fielding wrote.
According to information provided by Mr Osborne and Mr Day to the liquidator, three sites for property development by the SPVs are controlled by entities associated with Mr Barnes.
Another three sites were sold as mortgagee in possession due to the SPV trustee failing to adequately refinance the project. One was sold to Geelong Council with proceeds returned to the schemes, and a final project was sold and the SPV was placed into administration as the sale did not cover costs and investor funds.
Mr Fielding said he had written to the liquidators of the SPV trustees but had not received a sufficient response yet to report on their status.
“Further investigations are required to determine if any other factors contributed to the company and schemes’ failure,” he wrote.
Given the lack of money available, Mr Fielding flagged to need to go to ASIC or other parties to continue investigations.
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