Legal action over poor Orchard investments

A former employee of Orchard Funds Management has launched an action in the courts claiming the directors of associate company SAI Group have made poor investment decisions that have impacted on shareholder value.

Former Orchard head of property Graham Brewer has issued a writ in the Victorian Supreme Court alleging investments in China, agribusiness and an online superannuation company have been detrimental to SAI shareholders.

According to the writ, SAI invested about $40 million into Global Mart, which operates a large retail chain in China.

The $40 million came from funds that were managed by Orchard.

The writ alleges the investment was opposed by SAI director Greg McMahon, but SAI founder and director Peter Scully “insisted the investment be made by SAI Group”.

According to Orchard’s 2008 accounts, the investment in Global Mart had been “discontinued” while not disclosing any loss on the investment or whether the $40 million investment was recoverable, the writ states.

SAI invested in almonds and grapes, creating the Primary Infrastructure Fund, and later invested in the Sunwest Citrus Property Trust.

According to the 2008 Orchard accounts, the Primary fund has been placed into administration.

In February 2007, SAI paid $4.1 million for Max Super, writing off the whole investment by the end of the financial year, the writ alleges.

In the 2007 SAI accounts, Max Super generated revenue of $30,000 and made a loss of $4.9 million.

The writ said the business has subsequently been sold but there has been no disclosure of the price or loss to SAI shareholders.

Brewer holds 500,000 shares in the SAI Group (2.07 per cent stake) and 814,267 shares in Orchard Funds Management (1.8 per cent stake).

In 2006 he borrowed $500,000 from SAI to convert his options into shares, which were valued at $4 a share.

The shares were valued at $7.21 a share on June 30, 2007, while Macquarie valued the Orchard shares at $11.70 a share when it was considering floating.

According to the writ, the shares in both companies are now worthless due to the poor investments in Asia, agribusiness and superannuation made by SAI directors.

Debts from SAI Group amounting to $77 million were transferred to Orchard as part of a de-merger of the two entities earlier this year.

“The main asset of value was the funds management business managed by me at Orchard, which has now been saddled with the debts incurred by SAI Group, which SAI Group is unable to pay,” the writ states.

“Since I acquired shares in SAI Group, the directors of SAI Group have, in pursuit of their own interests in the non-property sector É incurred significant losses in SAI Group and the investment vehicles used by the directors, which cannot be paid by SAI Group.

“(Orchard) is now being made responsible to pay back or satisfy the losses run up by the SAI Group director in the pursuit of their own interests and not for the benefit of all shareholders of SAI Group or Orchard.”

The case is due to be heard in the Supreme Court on Friday.