Dunk Island dream in jeopardy as charges loom for investor
Property and investment house Mayfair 101’s hopes of transforming Dunk Island into a $1.5bn tourism mecca appear to be in tatters, after the Federal Court appointed Grant Thornton as provisional liquidators of key parts of its empire.
A judgment released on Friday showed the precarious state of the debenture-backed property empire, with the Australian Securities and Investments Commission saying the firm may have been running a Ponzi scheme and group founder James Mawhinney restrained from leaving Australia, as he may face criminal charges.
The controversial project to transform the Queensland tourism icon was backed by high-interest debenture and property bonds but the regulator told the court that investors could face substantial losses with the projects on the brink for months.
The regulator was concerned the bonds product were developed by Mawhinney to circumvent earlier court orders in order to make payments to investors in different products.
“ASIC has submitted that such conduct has characteristics which are typically associated with a ‘Ponzi scheme’,” the Federal Court judgment said.
The regulator has been investigating since January due to suspected breaches of laws as Mayfair promoted its products, and expanded the scope of its probe to Mawhinney’s suspected contraventions of the ASIC Act and Corporations Act in June.
ASIC solicitor Dayle Buckley has deposed that there is a possibility that criminal proceedings may be commenced against Mawhinney at some time in the future as a result of ASIC’s investigation,” the judgement said.
The regulator won orders to freeze certain Mayfair assets and to prevent the group founder leaving Australia after initially running a case over the manner in which two debenture products were sold to investors.
The funds were put towards backing property and tourism developments. Mayfair claimed ASIC’s actions put at risk more than $150m of investor funds and its Mission Beach and Dunk Island projects.
Mayfair said that prior to ASIC’s actions, it was working with a team of advisers, including PwC and KPMG, on a plan to refinance the tourism projects, so that distributions could be unfrozen and an “exit path” for existing investors established.
But the risky property scheme has been in jeopardy for months, ASIC told the court in an urgent hearing before Justice Stewart Anderson.
Mawhinney has been summoned to participate in a public examination for three days before the Court Registrar next week. He criticised the timing of this examination and also lashed the travel ban via in statement.
“If ASIC was concerned about Mr Mawhinney, currently in lockdown in Melbourne with his fiance and four-month-old daughter, leaving the country, they could have asked for his passport,” the statement said.
Mawhinney told the court he was “happy to surrender his passport to the court” and made a similar offer to ASIC.
The entrepreneur’s companies have also been restrained from raising funds, including its M Core Fixed Income Notes, M+ Fixed Income Notes as well as the bonds.
Grant Thornton will be joint and several provisional liquidators of the M101 Nominees Pty Ltd, which received about $67m. It will investigate the solvency of the Mayfair entity and the value of its assets, and the likely return to creditors in a wind-up.
They will also check whether the Mayfair company had kept proper financial records and if any laws have been broken.
ASIC has grounded Mayfair 101 founder James Mawhinney with a passport freeze. Picture: Supplied.
The company has been under pressure for months. In June, ASIC received a letter from Hall & Wilcox, the solicitors for PAG Holdings (Australia) Pty Ltd, as security trustee for the Mayfair’s core notes.
PAG said it attempted to appoint KordaMentha as a controller after having received incomplete and unsatisfactory responses from Mawhinney to inquiries.
But in late June KordaMentha said it was not prepared to accept the role as it was worried about the significantly reduced value of properties in northern Queensland, and another lender held mortgages over most properties.
PAG requested that ASIC give immediate consideration to calling in a receiver and manager. The collapse of another Mayfair business, IPO Wealth, and transfers made to a related company in the British Virgin Islands, also prompted concerns.
An affidavit by Mr Mawhinney showed his personal income tax returns did not disclose any substantial personal income and he had an ANZ bank account with about $420,000.
He also holds a bank account in Monaco set up when he was considering relocating, but he claimed it was never used. Mr Mawhinney also claimed not to hold any real estate personally.
ASIC also raised concerns about Mr Mawhinney, in seeking to raise funds for his stated purpose of improving “the group’s liquidity position”, but told the court in reality this situation “may have the hallmarks of the Ponzi-like characteristics of raising funds to repay M+ and Core Note investors”.
Mawhinney also recently expressed an intention to restructure the Mayfair 101 Group, create a new company and transfer investors from current companies to the new company.
ASIC believes that it is unlikely that investors in the M+ Notes will recover funds invested and was concerned that they may be transferred overseas, or otherwise improperly handled.
The regulator warned deposits paid on the Mission Beach properties not settled, totalling $5.85m, may be at risk of forfeiture due to failure to complete, especially if significant additional funds of $86.48m cannot be found to settle the property deals.
This article originally appeared on www.theaustralian.com.au/property.
