Drake Sues Accountant

Post date: 21-Apr-2019 12:15:08

Developer Peter Drake sues accountant for $86m over collapse of LM Investment Management.

April 20, 2019 8:06amGREG STOLZ writing for The Courier-Mail reports on Drake's claim against his accountant:A FALLEN Gold Coast high-flyer is suing his accountant for a whopping $86 million, claiming the numbers cruncher helped destroy his business empire.The extraordinary lawsuit has been launched by Peter Drake, a former ‘Millionaires Row’ resident who was developing a $1.5 billion Glitter Strip housing estate spruiked by celebrities including Jamie Durie, Sam Riley and Natalie Cook, and which was to feature a Kelly Slater wave pool.But Drake’s funds management business, LM Investment Management, collapsed spectacularly in 2013, leaving about 12,000 Australian and overseas investors $800 million out of pocket and sending him bankrupt.Now, Drake has lodged a Supreme Court claim against his former accountant, Scott McMurtrie, for $86 million in damages.His statement of claim alleges McMurtrie and his firm PKF were negligent in failing to stop LM being placed in administration and subsequent liquidation based on ‘back-of-envelope’ calculations.The claim alleges Drake’s demise began in March 2013 when a ‘high-level review’ of LM’s finances was prepared without his knowledge while he was overseas and given to a solicitor retained by the company.Peter Drake's “millionaire’s row” Mermaid Beach home.. See photo right. The review allegedly found that LM needed $2.5 million a month to meet its commitments but was suffering a $1.7 million-a-month cashflow shortfall.

LM’s major investment fund, on which it was ‘largely dependent’, was $38.5 million in the red, according to the review.

Options including selling assets, freezing fund redemptions and alternative funding were presented, along with winding up LMIM and its Managed Performance Fund.

The consulting firm that prepared the review then drew up draft board minutes authorising the appointment of administrators as ‘the company is likely to become insolvent’.

Drake then allegedly phoned McMurtrie for advice and was introduced to another accountant at an ‘urgent’ meeting.

The statement of claim alleges McMurtrie failed to warn Drake about “any matters whatsoever’ including the likely consequences of putting LM into administration, ‘inaccuracies’ in the high-level review and ‘the tendency of company administrators to become liquidators’.

Inside Peter Drake’s “millionaire’s row” Mermaid Beach home. See photo left. On March 2013, Drake and his fellow directors placed LMIM into administration, and the administrators then liquidated the company.Drake alleges that McMurtrie and PKF breached their duty of care by failing to warn him that placing the company into administration would ‘destroy public trust and confidence’ in the business.He alleges McMurtrie should have identified inaccuracies in the high-level review, ‘reflecting the speed and back-of-envelope approach’ with which it was prepared, and advised alternatives such as cost-cutting.“There were alternatives … by which LMIM would have continued trading as a going concern … that would not have caused the plaintiff’’s shares in the company to become worthless upon its liquidation,” the claim states.The administration destroyed public confidence and made the demise of LMIM “inevitable or very likely’, the claim alleges.

It says LMIM was valued at $86 million before it collapsed — the amount Drake is seeking from McMurtrie and PKF.

Neither McMurtrie or PKF have yet filed a defence to the claim, lodged last month.