Senator The Hon Nick Sherry
Minister for Superannuation & Corporate Law
P O Box 6022
Parliament House
CANBERRA ACT 2600
Dear Mr Sherry,
Re: REQUEST FOR URGENT GOVERNMENT INTERVENTION CITY PACIFIC LTD
FIRST MORTGAGE FUND (CPFMF) AND COMMONWEALTH BANK
We are Unit holders in the City Pacific First Mortgage fund who are gravely concerned that the Fund Manager, City Pacific Ltd, is not administering the Fund with the interests of Unit holders foremost. We understand that other Unit holders have contacted your office but feel that the Australian Government may not be aware of the circumstances governing our financial destinies which are in the hands of City Pacific Ltd and now the Commonwealth Bank of Australia. We are particularly concerned about the debt that the Fund has with the CBA and the concomitant influence that the CBA has over City Pacific and it's decisions concerning the Fund that seem to be to the detriment of Unit holders.
In October, 2008 many Unit holders wrote to the Commonwealth Bank of Australia requesting the Bank to reconsider any further renegotiation of City Pacific Ltd's finance facility over the Fund advising that any further renegotiation will simply delay the inevitable and allow City Pacific Ltd to continue to bleed the FMF's diminishing asset base without any foreseeable benefit to Unit holders. We requested the Bank to exercise its rights in relation to the security it holds over the assets of the FMF and to consider a staged realisation of the Fund's assets by the appointment of a Voluntary Administrator. The Bank's response ``relationships between Banker and Customer are subject to strict duty of confidentiality and we are unable to discuss arrangements between the Bank and City Pacific Ltd or City Pacific First Mortgage Fund''.
As the finance facility is due to be renegotiated again by CPL and the CBA in February, 2009 we request urgent Government intervention to stop the renegotiation of the existing finance facility and have listed our fears and reasons as to why we seek the appointment of a Voluntary Administrator to administer our Fund in a non-prejudicial way:-
1. We fear that while the Commonwealth Bank of Australia continues to renegotiate the finance facility, CPL will continue to trade as a non-liquid entity thus negating responsibilities and obligations by the Fund Manager to the Fund's Unit holders, by allowing the Fund Manager to continue to withhold distributions and redemptions. We believe that while the Fund continues to operate as a non-liquid enterprise with no new business initiated and consequently no further income being generated the Fund's asset base will continue to be depleted on a daily basis.
2. City Pacific raised in excess of $200 million from the Commonwealth Bank of Australia without consulting Unit holders. Although this appears to be constitutionally legal, City Pacific Ltd has compromised Members' equity in the Fund, which is primarily involved in lending money, by giving security to outside bankers. This has placed the Fund in a perilous position by allowing it to become a substantial debtor.
3. We fear by prolonging the Fund's clearly failing existence through continual refinancing, with interest payments going far beyond initial projections, the asset base will continue to diminish, this will clearly not be in the best interests of Unit holders.
4. City Pacific Ltd has direct conflicts of interests arising out of the fact that they are seeking to preserve income streams from the First Mortgage Fund. On the one hand the CPFMF funding is being loaned to related entities of City Pacific Ltd that appear to be struggling to meet their commitments. Also, the Directors and Officers receive personal benefits flowing to them from the exorbitant management fees that City Pacific Ltd continue to draw from the Fund.
5. The Fund's various Product Disclosure Statements dated 1999-2007 that induced Unit holders to invest in the CPFMF stated ``that all loans in the Fund are secured by Registered First Mortgages over real property'' and the Public Trustee of Queensland would be the Custodian of the Fund. This is no longer the case.
6. The Fund is to provide Unit holders with regular income from a pool of high yielding property loans secured by Registered First Mortgages. This is no longer the case.
7. Redemptions have been frozen and distributions stopped for over six (6) months. City Pacific Ltd, through the FMF, continues to fund existing selected projects to completion thereby ranking Unit holders third in line, behind the CBA and Developers, for benefits from the FMF, which is clearly not in Unit holders best interests.
8. City Pacific attributes the problems to the `global financial crisis' but it is clear that the problems relating to the FMF were apparent before this. Reputable journalists such as Michael West (SMH) were exposing the difficulties faced by the Fund and its Unit holders before this event became apparent.
Furthermore, City Pacific Ltd has continued to state its intention to eventually list the Fund and to this we emphatically say NO!
Mr Sherry, Unit holders in the CPFMF number in excess of 11,000. Many of us are self-funded retirees and dependent on our investment income. We realise that the Governments assistance program has not been extended to mortgage funds and we are not in this instance seeking financial help. However, we feel we have been the victims of City Pacific Ltd's mismanagement and we are putting our faith in the justice of the Australian Government. We feel we have been let down by City Pacific Ltd, and believe that we can no longer trust them to act in the interests of Unit holders.
Yours sincerely
City Pacific FMF Unit Holder
