Investors asked for help.
Investors in the stricken Premium Income Fund are being asked to stump up between $500 and $2000 to help fund a class action against the former responsible entity for the fund, the MFS Premium Income Fund, as well as the fund's compliance auditor, KPMG.
Sydney law firm Carneys Lawyers is claiming damages of $746 million on behalf of more than 10,000 PIF investors. It alleges KPMG is likely to have the personal indemnity insurance to cover the claim.
MFS collapsed last year with more than $1 billion in debts. Its main fund, the PIF, has since been sold off to a Brisbane-based merchant bank, Wellington.
Court documents show the applicants have begun proceedings in the Federal Court on behalf of 10,386 investors "to recover damages for losses incurred as a result of statutory breaches, misleading or deceptive conduct and negligence in connection with their investment in the MFS Premium Income Fund.
"The respondents to the proceedings include the compliance plan auditor (KPMG), the responsible entity of the Fund its officers and directors and employed investment consultants".
The case will be funded by the PIF investors or a litigation funder such as Litigation Services or IMF (Australia). An offer from a litigation funder is expected next month. If a litigation funder does not eventuate, Carneys is asking PIF investors who hold more than 500,000 units for a $2000 contribution, those with up to 500,000 units are being asked for $1000, while a $500 contribution is being asked for unit holders with less than 100,000 units.
"This case is well and truly, and up and running," said Carneys Lawyers partner Arthur Carney.
"Investors have the option of funding it themselves or looking at a litigation funder." The plaintiff alleges between 2005 – 2007 the PIF made a number of unsecured loans to a related party, MFS Pacific Finance, a foreign corporation. It alleges the loans were made without approval by members of the Fund in contravention of the Corporation Act.
"They are unsecured, made to a foreign corporation that did not have sufficient assets to repay the capital sum. They could not be regarded as reasonable in the circumstances if the parties were dealing at arm's length," according to court documents.
The plaintiff alleges that as the auditor of the compliance plan, KPMG must have been aware of circumstances sufficient to give rise to a reasonable suspicion these unsecured loans to MFS Pacific Finance contravened the Corporations Act. KPMG has foreshadowed an application to have the statement of claim struck out on the basis it discloses no course of action.
"We don't agree with that, I think that is nonsense, but they are entitled to argue their application and the court will determine it," said Mr Carney.
KPMG would not comment yesterday because legal proceedings were pending, said a spokeswoman. The case has been stood over until June 30.
Article by - Lisa Allen