LM Investment Management Ltd (receiver apptd)(in liq) v Drake

The case of LM Investment Management Ltd (Receiver appointed) (in liquidation) v Drake involved LMIM, the plaintiff, and several defendants who were directors of LMIM. LMIM was the responsible entity of a registered managed investment scheme (FMIF) and also acted as trustee for an unregistered scheme (MPF). The dispute centred on the division of settlement proceeds from litigation brought by the custodian of the registered scheme, LMIM, and the borrower against a third party, which had been funded by the unregistered scheme. LMIM claimed the division of proceeds in the ratio of 65:35 favoured the registered scheme and contravened the directors' duties under the Corporations Act, specifically sections 601FD(b) and (c). LMIM argued that the directors failed to act in the best interests of the members and breached their duty of care and diligence, resulting in the loss of settlement proceeds for the registered scheme.

The court was required to determine whether the defendants, as directors of LMIM, contravened their duties under sections 601FD(b) and (c) of the Corporations Act by deciding to divide the settlement proceeds in a 65:35 ratio in favour of the registered scheme. The court also had to assess whether this decision caused the registered scheme to suffer the loss of the whole settlement proceeds. The primary legal issues were whether the division of proceeds constituted a breach of duty and if such a breach caused the alleged loss.

The court reasoned that the directors had obtained independent legal and accounting advice before deciding on the division of settlement proceeds, which demonstrated a level of care and diligence. The court found that LMIM had not proved that the division of proceeds contravened the directors' duties under sections 601FD(b) or (c) of the Corporations Act. Furthermore, the court held that even if there had been a contravention, it had not caused the registered scheme to suffer the loss of the entire settlement proceeds. Consequently, the plaintiff's claim was dismissed.

In conclusion, the court dismissed the plaintiff's claim and ordered the parties to file written submissions on costs within seven days. The court found that the directors did not contravene their duties, and there was no causal link between any alleged breach and the loss of settlement proceeds for the registered scheme.