The trustee for collapsed investment group LKM Capital has reached a settlement in a class action brought on behalf of hundreds of investors who sunk $63 million into the failed firm.
Sandhurst Trustees reached a deal to resolve the action on May 31, according to an order by Federal Court Justice Michael Lee made public this month. Terms of the settlement are confidential.
The case, which was set to go to trial in October, alleges Sandhurst failed to exercise reasonable diligence to ascertain whether LKM had breached the trust deed.
LKM, which operated a debenture scheme managing $63 million of investors money, was placed in receivership by Sandhurst in August 2008.
In 2010, the Australian Securities and Investments Commission won an order from the Federal Court banning LKM’s two founders from leaving the country. ASIC accused the pair — Rolf Koop and his wife Sandra Martin — of breaching their directors duties under the Corporations Act.
A spokesperson for ASIC did not immediately respond to a request for an update on its investigation.
Class action firm Meridian Lawyers filed the action on May 2014 against Sandhurst on behalf of investor Charles Hodges and 834 other class members alleging they suffered loss and damage as a result of the trustee’s breaches.
Sandhurst was alerted in April 2007 by ASIC about concerns that LKM was unable to meet redemptions to investors and advised LKM to engage an accounting firm to prepare an independent report. The August 1, 2008 report indicated that LKM had committed breaches of the financial covenants of the trust deed, and the trustee appointed receivers that day.
The case alleged that Sandhurst, which acted as trustee for LKM debenture holders from October 2001, was in breach of the Corporations Act until June 30, 2007.
The settlement comes a month after Sandhurst settled a class action by retirees who claim they lost $27 million with the collapse of property lender Wickham Securities, for which Sandhurst was also the trustee.
That deal, approved by Judge Lee in April, included almost $5 million in legal fees for class action firm Shine Lawyers, which brokered the agreement.
The Wickham case was brought in July 2015 against Sandhurst on behalf of 300 retirees who lost their savings when Brisbane-based Wickham went into administration in late 2012.
The investors, who held unsecured deposit notes issued by Wickham, alleged Sandhurst did not provide proper oversight of Wickham as investor trustee and failed to ensure Wickham had enough funds to repay noteholders.
Wickham CEO Garth Robertson was sentenced to five years’ in jail in September 2016 after pleading guilty to multiple charges of fraud and giving false information to Sandhurst.
A Wickham director, Brad Sherwin, was charged with fraud in April 2015 following an ASIC investigation. Sherwin pleaded guilty to 24 counts of fraud and was sentenced to 10 years in prison in November 2017.
Meridian Lawyers represented the class in the LKM action. Sandhurst was represented by Clyde & Co.
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