Lion Property Group – which was described in court as a “giant Ponzi scheme” after drawing in more than $120m from 600 investors – was ordered into liquidation on August 6, about a month after provisional liquidators began probing the company.
Lured by charm, slick social media, extravagant parties and the promise of up to 25 per cent annual returns, many clients ploughed in their retirement savings.
A new preliminary report from the liquidator has revealed some investors were repaid before the company collapsed, but that they were likely paid with funds from new investors, not from proceeds of actual property developments.
Liquidators named “the use of current investor funds to fund completed projects” as a key reason for the group’s failure, along with poor financial control, inadequate cash flow, “excessive head office expenditure” and poor economic conditions.
Their report called out eight sections of the Corporations Act which may have been breached, including unconscionable conduct, false or misleading statements, dishonest conduct and misleading or deceptive conduct.
The liquidators also flagged “insufficient or missing” financial records; possible uncommercial transactions; and voidable related-party transactions and have reported their findings to corporate regulator ASIC.
ASIC confirmed it had opened a new investigation into Lion, after closing an investigation without last year taking any action.
Victoria Police have also received multiple complaints from investors, with the liquidator’s preliminary findings passed onto the service’s Financial Crimes Squad.
A Victoria Police spokeswoman confirmed the squad was assessing the matter.
Lion’s 20 bank accounts had just $3000 in them when it was placed into liquidation.
As well as owing more than $122m to shareholders, liquidators estimate Lion owes $3.72m to unsecured trade creditors, $1m in tax and $361,270 to its six former staff.
The group’s main assets are properties worth around $64m, held by 18 related companies set up for specific development projects.
However, the properties have all been seized or sold by secured lenders who are owed around $67m between them. Secured creditors have also taken possession of vehicles owned by the group.
The report said there would be “a significant shortfall” to meet the claims of creditors and investors and that liquidators were investigating the flow and use of cash across the group.
While investors believed their funds were being used towards the purchase and development of property projects, the liquidators have confirmed the group largely took out mortgages for that purpose, leaving investors without a stake in the actual properties.
They have also found payments to related parties of more than $25.3m, including $816,000 to directors Garry Pesochinsky and John Sader and millions more to companies linked to them.
The report said the liquidators were not currently seeking payment for the liquidation, despite its complexity, as there was no money yet available.
Because the liquidation is unfunded, much of the required cash tracing and legal action may not be conducted, it said.
kathleen.skene@news.com.au
