Directors of a company group that collapsed in 2008 owing $2.5 billion have been ordered to pay a total of $617 million to thousands of retitree investors, many of whom lost their life savings.
The Supreme Court in Brisbane made the orders against four former directors and an officer of MFS Investment Management business and its operating entity MFS Ltd. The orders relate to the misappropriation of $147.5 million from a group’s Premium Income Fund to cover debts of other group entities.
Justice Douglas said legal requirements “were flagrantly ignored” and penalties “should reflect the complete disregard which these defendants had to to their duties under the Corporations Act.”
ASIC’s actions in bringing the case “were justified. The insouciant attitude of the defendants to this misuse of money intended to be used for PIF’s investors beggars belief,” Justice Douglas said.
ASIC Commissioner John Price said, “the substantial disqualifications from managing corporations and pecuniary penalties imposed by the Court reflect the seriousness with which courts view abuses by directors and senior managers of corporations who occupy positions of substantial trust in the investment community.”
ASIC’s action alleged that the five had created false documents and provided fabricated information to auditors and creditors.
The penalties included fines totalling $1.89 million as well as over $617 million in compensation to investors, payment of ASIC’s court costs and disqualifications as corporate managers.
The orders follow a finding in May 2016 that the five, Michael Christodoulou King, Craig Robert White, David Mark Anderson, Guy Hutchings and Marilyn Anne Watts had collectively committed 217 contraventions of the Corporations Act.
Mr White, a former CEO, was disqualified permanently from managing corporations and Mr King, who co-founded MFS, was banned for 20 years.
Mr Anderson, who was MFS’ chief financial officer and company secretary was disqualified for 25 years, as was Mr Hutchings, a former CEO and director of MFS Investment Management Limited. Ms Watts received a five year ban.
The five avoided criminal prosecution which could have resulted in jail time with ASIC deciding to take civil action.
PIF was the largest fund in the MFS stable and was valued at $787 million in October 2007.
The MFS group trail of misadventures included buying the Mount Hotham and Falls Creek ski resorts and selling them off to satellite funds for a quick profit only to see them written down by $40 million a few years on despite paying millions in management fees to MFS.
While PIF investors may be happy with the result, it appears likely that the five would not have the necessary funds to make good the total compensation bill ordered by the court. Many of its investors were retirees who put their life savings in the fund.
“When all is said and done — and much has been said at least — this remains a sorry tale of the misuse of other people’s money by those who should have known better,” Justice Douglas said following a 2016 hearing of the issue.