Mayfair Class Action – Group Member Update No. 3 – 31 March 2021

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  • Mayfair Class Action – Group Member Update No. 3 – 31 March 2021

Privileged & Confidential – Common Interest Privilege

Dear Mayfair 101 Investor,

We refer to our email to you of 20 January 2021 and our investigations into the Mayfair 101 collapse since that date, and now provide you with a further update.

Current Status of Class Action

We continue to receive registrations from M Core and M Plus note holders. Registrants continue to provide us with information and documents which assist with our enquiries.

As part of our investigations, it has been imperative that we maintain a watching brief over the current ASIC and Liquidator led proceedings against the various Mayfair entities.

Current Proceedings

  • ASIC v Mayfair Wealth Partners Pty Ltd ACN 168 878 779 | VID228/2020 (‘Mayfair Wealth Partners’);
  • ASIC v M101 Nominees Pty Ltd Pty Ltd & Ors | VID524/2020 (‘M101’); and,
  • In the matter of IPO Wealth Holdings No 2 Pty Ltd (ACN 620 610 157) & Ors | SEC 2020/02284 (‘IPO Wealth’).

Mayfair Wealth Partners

This matter has been in the news recently, and you may have recently seen that important orders were made.

His Honour Justice Anderson made orders on 23 March 2021 in relation to Mayfair’s conduct. The effect of these declarations is that the Court was satisfied that Mayfair engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive (along with other relevant ASIC Act breaches) in relation to 4 separate representations regarding the M+ Fixed Income Notes and the M Core Fixed Income Notes. That judgment is available at http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2021/247.html?context=1;query=mayfair%20wealth%20partners;mask_path=to, however, the key misleading or deceptive representations included:

  • Representations to the effect that the Mayfair Products were comparable to bank term deposits (‘Bank Term Deposit Representations’);
  • Representations to the effect that the Mayfair Products would be repaid in full on maturity (‘Repayment Representations’);
  • Representations to the effect that the Mayfair Products carried no risk of default (‘No Risk of Default’); and
  • Representations to the effect that the M Core Fixed Income Notes were fully secured financial products (‘Security Representations’).

This represents a significant adverse judgment against Mayfair. Final orders are yet to be made as the matter has been stood over for a case management hearing on 6 April 2021.

ASIC has invited the Court to consider financial penalties against the Mayfair entities and Mr Mawhinney personally, who was found by his honour to be “the directing mind and will, and the ultimate beneficiary, of each of the defendants.  In light of this and the current findings against Mayfair, any suggestion that Mr Mawhinney’s interests can align with yours should be treated with suspicion.

It is likely that on the next Court date, orders will be made regarding a timetable for hearing on the question of penalties.

M101 Nominees Pty Ltd

In our email of 20 January 2021, we provided you with an update in the ASIC v M101 Nominees Pty Ltd Pty Ltd & Ors – VID524/2020 (‘M101’) case, informing you that this is the case of most direct relevance to investors.

By way of recap, M101 Nominee’s was the company that Mayfair set up in order to raise investor funds. Since our last update, the matter was set down for hearing in early February to decide whether M101 Nominees should be wound up, or liquidated, on grounds that it was just and equitable to do so.

Subsequently, the defendants and ASIC agreed on orders winding up M101 Nominees on “just and equitable grounds”. What this means is that Mayfair agreed to sign orders to the effect that it was just and equitable to liquidate the company.

Ultimately, in the judgment delivered by Justice Anderson on 4 February 2021 (http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2021/62.html?context=1;query=m101;mask_path=), he noted:

“…I am satisfied, based upon the evidence relied upon by ASIC, that there is a risk to the public interest that warrants protection and that such protection can best be provided by ordering the winding up of M101 Nominees. I am also satisfied, based on the evidence and, in particular, the Provisional Liquidators’ Report, that M101 Nominees has at all times been and remains insolvent.” [emphasis our own]

Whilst this will progress the winding up of the business and place the Liquidators in a position to complete their final reports on the amount of funds able to be dispersed by the liquidators to investors, we anticipate there will be few material changes to their provisional findings in their report of 24 September 2020. In their executive summary of that report, the Liquidators stated (amongst other things):

“My investigations show that of the c.$63.5 million advanced to Eleuthra by [M101 Nominees] and $44.4 million advanced by M101 Nominees to Eleuthra, only c.$62.9 million was used to make real estate asset purchases. The remaining funds were provided to other entities in the M101 Group as inter-company loans and also used to pay a large amount of operating expenses of the Mayfair 101 Group (c.$21.7 million in FY20)…”

“The Company’s (M101 Nominees) key asset is the outstanding loan due from Eleuthra. As part of my investigations, I have reviewed the financial position of Eleuthra and it is my opinion that the likelihood of any recovery by the company of the Eleuthra loan is low…”; and,

“It is my preliminary finding that in a winding up proceeding, creditors of the company (effectively the M Core noteholders) would receive no return. However the M Core noteholders may receive via the Security Trustee a partial return from the assets of other entities in the Mayfair 101 Group subject to the realisation process currently being undertaken in separate insolvency proceedings.”

The provisional Liquidators report foreshadows that investors can expect to have suffered an almost complete loss of their capital, if not the complete loss of the funds that they have invested.

If this scenario comes to bear, and subject to securing a source of assets for recoverability, class action proceedings may become your best (if not sole) prospect of recovering any amounts additional to that recovered by the liquidator.

We have received copies of regular Mayfair 101 “press release” updates from Mayfair registrants. We caution investors to consider any publication from Mayfair 101 in the context of the multiple instances of misleading and deceptive conduct as listed above and in the attached judgments.

A careful reading of these judgments should quickly disabuse any notions that these press releases should be taken at face value.

IPO Wealth

With respect to the IPO Wealth proceedings, his Honour Justice Robson of the Victorian Supreme Court handed down his judgment on 6 November 2020.

This judgment rejected Mr Mawhinney’s proposal of realising the assets of that scheme and ordered the winding up of the various corporate entities associated with the IPO Wealth.

The judgment makes determinations that may prove useful in any future class action proceedings on behalf of noteholders. Whilst the judgment is complex, it makes clear findings in relation to misconduct by Mayfair and its associated entities.

Notably, at paragraph [209]-[211] of that judgment, His Honour relevantly stated:

“Mr Mawhinney would receive a fee for conducting the realisation process. Mr Mawhinney is also prepared to transfer 5 million of the Accloud shares that were transferred to 101 Investments Ltd to New Co. The provisional liquidators have raised the possibility of recovering those shares through a cause of action under the Corporations Act. Needless to say, such assets that the provisional liquidators may have had in taking proceedings against Mr Mawhinney for wrongful transactions could not be pursued if the Mayfair proposal were undertaken…

“…First and foremost, Mr Mawhinney’s observance of the principles of good governance is far from what should be expected of a company director or a company officer. His failure to keep proper accounts, his practice of making loans without security, and his record of transferring scheme assets to his own companies demonstrate that Mr Mawhinney is not a person who should realise the assets of the Fund, or be the director of the relevant companies.[emphasis our own]

A copy of this judgment is at http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/vic/VSC/2020/733.html?context=1;query=ipo%20wealth;mask_path=.

Our next steps

We are continuing our watching brief over all proceedings that pertain to Mayfair and their related entities, and in doing so, steadily build the evidence that will form the basis of our class action.

We otherwise remain in contact with litigation funders to effectively fund the commencement of any class action proceedings without the need to ask for individual financial contributions, or the support of Mayfair or Mr Mawhinney. We will provide you with further details as these come to hand.

We thank you, our registrants, for your continued support in our investigations and request that you continue to forward documents as they come to hand. We particularly thank those registrants who agreed to be interviewed by journalists in the past week from the Australian Financial Review about their experiences investing in Mayfair 101. We understand a full length feature article will be published in the Easter long weekend edition of the Australian Financial Review on the subject of investments made pursuant to sophisticated investor provisions in the Corporations Act.

We anticipate writing to registrants with further updates as key events develop, however, if at any time you have any questions, or require any clarification, please do not hesitate to contact the Mayfair Class Actions team at mayfair101@mclawyers.com.au or on (02) 8379-1278.

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