By Ben Butler Margin Call Columnist Melbourne From The Australian

The hunt for assets belonging to failed funds management empire Van Eyk has moved to tax haven the Cayman Islands.

Investors have launched legal action in the Grand Court of the Cayman Islands to wind up a partnership in which Van Eyk was an investor, the Torchlight Fund, run by Kiwi businessmen George Kerr and Russell Naylor.

Documents filed with the court investors represented by Aurora Funds Management, a subsidiary of the Nicholas Bolton-controlled Keybridge Capital, make serious allegations of wrongdoing against Mr Kerr and the New Zealand-listed group he runs with Mr Naylor, Pyne Gould Corporation.

Mr Kerr and Mr Naylor are accused of having Torchlight buy NZ property from Mr Kerr and sell it back to him at a loss, engaging in share trades with PGC to the fund’s detriment, failing to provide fund accounts and paying themselves inflated management fees totalling $25 million.

The legal action sets the scene for a stoush over Torchlight’s assets between investors and WorleyParsons chairman John Grill, who made a short-term, high-interest loan of $37m to the fund.

Mr Kerr said the allegations were false and threatened to sue The Australian if it published them. “All claims are without merit in Torchlight’s opinion and will be vigorously defended or ­actioned by the fund,” he said.

Mr Naylor and Mr Grill could not be reached.

Aurora lodged the lawsuit on June 25 as trustee of three entities who together have pumped $90m into Torchlight: the Bear Real Opportunities Fund, a fund in which Van Eyk’s Blueprint High Growth Fund was an investor, and two NZ government bodies, Crown Asset Management, which was set up in 2012 to hold the assets of the country’s collapsed finance company sector, and the Accident Compensation Corporation. It is supported by two investors who have put in an additional $5.88m: Logic Fund Management, a Kiwi outfit run by former Bain trader Greg Marshall, and another NZ state entity, Public Trust.

Aurora wants the court to wind up the fund because it has “a justifiable lack of confidence in the conduct and management of the partnership’s affairs caused by the lack of probity in the actions (and inactions)” of Mr Kerr and the general partner, a Caymanian company controlled by Mr Kerr and Mr Naylor that runs Torchlight. “Further, there has been a total breakdown of trust and ­confidence between the general partner and/or Mr Kerr and the petitioners,” Aurora said in its winding-up petition.

Aurora said it estimated the total size of the Torchlight fund at between $216m and $259m, but could not be more precise as it had not received information from the general partner “for some time and the figures that have been provided are unreliable”.

It said Torchlight was originally domiciled in New Zealand, but in December 2012 investors’ interests were transferred “without consultation or approval” to the Cayman Islands by giving them equivalent stakes in the Caymanian fund.

Mr Grill’s private company, Walaci, put the shell that was left behind in New Zealand into receivership in June last year after it failed to repay a $33.6m debt.

The debt arose after Walaci gave Torchlight a $37m loan in August 2012 that attracted interest of $500,000 a week after its two-month term expired.

Aurora said the receivers of the NZ shell, McGrathNicol, had launched action laying claim to the Cayman fund’s assets.

Under attack in Aurora’s lawsuit is a real estate deal in which Torchlight bought NZ land from one company associated with Mr Kerr in 2010 for $NZ17m and two years later sold it to “a purchaser associated with Mr Kerr” for NZ$3.25m, causing the fund a loss of NZ$13.75m. It is alleged that in 2010 Mr Kerr also tried to hide the fact he had sold shares he indirectly owned in IEF Real Estate Group, the former name of pub empire Lantern Hotels, to Torchlight by washing the deal through Mr Marshall’s Logic.

“Mr Kerr approached Mr Greg Marshall of Logic on the basis that he wished Mr Marshall to undertake ‘cleansing transactions’, so that the documentary trail would not disclose any interest or benefit to him from the acquisition of shares in IEF by the NZ fund,” Aurora said.

Mr Naylor was managing ­director of Lantern, which is 34 per cent owned by PGC and runs pubs including the Bowral Hotel and North Sydney’s the Commodore, until last month when he was ejected in a shareholder revolt. The revolt was led by 24.7 per cent owner Millinium Asset ­Services, which also acts as a trustee for Bear Real Opportunities Fund. PGC, 79 per cent owned by Mr Kerr and domiciled in tax haven Guernsey, is also accused of benefiting at Torchlight investors’ expense in share transactions involving a British company called Epic.

It’s alleged Torchlight bought Epic shares at NZ90c each in 2011, then sold them to PGC the following year for NZ43c each. Last year, PGC sold the shares, along with others it had acquired, for $NZ1.065 each.

Aurora claims that, through their management company, Mr Kerr and Mr Naylor have paid themselves fees of about $NZ28.2m ($25m) since 2011, even though Torchlight was losing money for most of that time.

The pair were “not entitled” to a $10.26m “performance fee” reaped when the fund moved from New Zealand to the Cayman Islands, Aurora said.

Aurora said “acquisition fees” of $6m paid between 2010 and 2013 implied the fund bought $420m of assets, but it was aware of only $234m worth of deals.

Following Van Eyk’s collapse in September last year, managing director Mark Thomas blamed the group’s collapse on Macquarie Group’s termination of it as Blueprint manager after a relatively small amount of money was “misappropriated by a fund manager against instruction to a hedge fund named Torchlight run by a former shareholder, George Kerr”.

But in an October report to creditors liquidator Trent Hancock of Moore Stephens said his initial investigations showed Macquarie decided to pull the plug because of a $31m investment in illiquid London-based hedge fund Artefact Group.

IMAGE: The paper trail. Source: The Australian

For more on this story go to: http://www.theaustralian.com.au/business/companies/van-eyk-asset-hunt-investors-take-legal-action-in-cayman-islands/story-fn91v9q3-1227449889789