ASIC has commenced proceedings in the Federal Court of Australia (Victoria) to freeze assets and wind up companies associated with two land banking schemes operated in Victoria. The two land banking schemes are known as
- Hermitage Bendigo (formerly Acacia Banks) located at Midland Highway, Bagshot, Victoria 3551 (Hermitage); and
- Foscari, located at 99 Palmers Road, Truganina, Victoria 3029 (Foscari).
ASIC is seeking to appoint liquidators to the development companies which operated the land banking schemes. The development companies are:
- Bilkurra Investments Pty Ltd (ACN 097 182 182) (Bilkurra); and
- Foscari Holdings Pty Ltd (Receiver and Manager Appointed) (ACN 158 434 578) (Foscari Holdings).
ASIC is concerned that the development companies are insolvent and that it is also just and equitable that the companies are wound up. ASIC's investigations suggest that investors may have invested in the land banking schemes on the basis of misleading representations and that option agreements entered into by investors in Hermitage and Foscari purportedly allow for monies invested in the schemes to be used for any purpose whatsoever, and need not be used to progress the two land banking schemes.
ASIC is also concerned that Hermitage and Foscari are not close to completion and appear to be incapable of completion due to the financial position of the development companies.
ASIC has taken this action to protect the interests of investors.
In addition, ASIC is taking action against Project Management (Aust) Pty Ltd (ACN 151 902 126) (PMA) and Michael Grochowski. ASIC alleges that PMA and Mr Grochowski were involved in the operation of the land banking schemes and that bank accounts relating to the development companies were operated by PMA.
Background
The proceedings are part of ASIC's wider and ongoing investigation into land banking.
Land banking is a real estate investment scheme involving the acquisition of large blocks of land by a promoter or developer of the scheme, often in undeveloped rural areas, who then offer portions of the land to investors.
Land banking companies typically promote the investment with representations of high potential returns if the land is redeveloped, or if plans for rezoning and development are finalised.
Investors either purchase a lot in the land, or acquire an option to purchase a lot of land in an unregistered plan of subdivision. The option agreement is triggered at a time that the necessary development is approved by the local council.
A number of land banking schemes around the world have collapsed without the promoted redevelopment ever proceeding. Criminal prosecutions have also occurred in circumstances were investors have been misled as to the prospects of rezoning and planning approval being obtained for the land, or in instances where the land was not held.
In August 2015, following an investigation, ASIC commenced proceedings against companies associated with Jamie McIntyre and the 21st Century Group in relation their promotion and sale of interests to investors in five land banking schemes. On 7 October 2015 the Federal Court made orders appointing provisional liquidators to the companies which operated the schemes. (Refer: 15-289MR)
On 7 December 2015, the Federal Court of Australia made wind-up orders for failed land banking company Midland Hwy, following ASIC action. ASIC sought the orders as it considered it in the public interest for a proper investigation into the affairs of Midland Hwy to be conducted by independent liquidators. (Refer: 15-368MR)
Investors should be vigilant when investing in such schemes and seek independent legal and financial advice. Investors should also assess their risk tolerance to this type of scheme and fully understand tax implications of investing through a self-managed superannuation fund. ASIC notes that many of the promotors of land banking schemes offer access to lawyers and financial advice, but is concerned that they are not independent enough to provide the best advice.
These types of investments may constitute a managed investment scheme and/or a financial product. Developers and promoters should therefore hold an Australian Financial Service Licence and register these schemes with ASIC.
Further information on land banking is located on ASIC's MoneySmart website.
More information about ASIC's proceedings, including Frequently Asked Questions
Editor's note 1:
On 21 December 2015, the Federal Court made freezing orders against Bilkurra, Foscari Holdings, PMA and Michael Grochowski from selling, charging, mortgaging or otherwise dealing with or disposing of any property of Bilkurra or Foscari Holdings until the hearing and determination of the proceeding or further order of the court.
The Court also ordered that Bilkurra and Foscari be restrained from completing contracts of sale relating to Hermitage and Foscari (unless the prior written consent of ASIC is obtained).
The trial of the proceeding has been set down for 22 February 2016 before his Honour Justice Beach.
Editor's note 2:
The trial of the proceeding, which was set down for 22 February 2016 before His Honour Justice Beach, has been vacated and and the matter has been listed before His Honour for directions on 4 March 2016. The freezing and restraining orders made by His Honour on 21 December 2015 remain in place.
Editor's note 3:
On 4 March 2016, the Court granted leave to TPC (Vic) Pty Ltd to intervene in the proceeding and made timetabling orders for the filing of affidavits and submissions. The Court also set the matter down for trial on 13 and 14 April 2016. The freezing and restraining orders made by the Honourable Mr Justice Beach on 21 December 2015 remain in place.