https://www.copyright link/companies/financial-services/administrators-probe-14m-deals-in-pirate-funds-empire-20191216-p53kijAdministrators probe $14m deals in pirate funds empire
Liam Walsh Dec 17, 2019 — 4.29pm
Administrators have raised concerns about the outflow of almost $14 million from a now-collapsed company in a funds management group named after pirates.
The administrators of JB Financial have also said their initial probe of the company’s failure had turned up potential breaches of director duties and argued “strong” public policy reasons exist to investigate further.
Administrators say their investigations identified payments made by JB Financial that "may constitute uncommercial transactions”.
Administrators Marcus Ayres and Brett Lord of EY made the comments in a creditors report filed with regulators and obtained by The Australian Financial Review.
JB Financial fell into administration last month and was locked out of its premises on Brisbane’s Eagle St. It is part of the beleaguered funds management group established by Stuart McAuliffe, a former academic who named his funds after 17th and 18th century pirates and raised more than $50 million from investors on the ASX.
JB Financial was a holding company that held stakes in entities including a currency exchange business and a private investigation firm. Mr McAuliffe was chief executive there, and had been a director until February 2018.
Creditors are now claiming almost $16.5 million. The company had listed large amounts of assets including almost $15.8 million in inter-company loans.
But the administrators have revealed that “there is a material likelihood that a large number of these loans are unrecoverable”.
They also said their “investigations identified a number of payments made by [JB Financial] that may constitute uncommercial transactions”.
They highlighted payments of $9.5 million to investment management firm John Bridgeman, which owned a stake in the failed entity and is run by Mr McAuliffe. Then there was $1.2 million to an associated restaurant business. Both these transactions were noted as loans from the failed entity.
The administrators also highlighted another $3.85 million in payments to an associated trading business.
Their investigations also targeted the company’s sole director at the time of failure: Sam Elderfield, 34, a former student at Bond University where Mr McAuliffe taught. The administrators highlighted their investigations found potential breaches of director requirements to exercise care and diligence, and act in good faith.
Attempts to obtain comment from Mr Elderfield, who has other roles in the pirate-themed funds management business, were unsuccessful.
Mr McAuliffe, who did not respond to queries, was listed as being owed $227,000 including $69,000 in holiday pay as a priority creditor along with other employees. But the administrators said they would assess whether his claim would be a classed as a priority creditor.
JB Financial had become insolvent potentially in June this year, administrators estimated. That was when Partners for Growth, which had lent the company at least $7 million, called a default on its loan.
Partners for Growth subsequently transferred their loan to Garbon Investments, a company run by Tasmania millionaire Greg Woolley.
Garbon Investments has now put in an offer backed by administrators. It would release its claims valued at almost $9.5 million and contribute $775,000 in cash.
Priority creditors would receive a full payout and some unsecured creditors potentially would obtain 59¢ in the dollar – and the entity is then put into liquidation. That would allow investigations to continue and potentially for more recovery of funds, administrators said.
This was in the context of “the concerning conduct of the director and others and the strong public policy reasons for these investigations to be undertaken”.
A second repayment offer was from Mr McAuliffe and his investment management firm John Bridgeman. A third offer listed in the report was from Brisbane-based investment outfit Lonhro Capital Partners and Ross Patane, who is a director on the pirate-themed Henry Morgan fund at which Mr McAuliffe also is managing director.
The problem for the last two offers is that key creditor Garbon Investments does not support either deal.
