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14-057MR ASIC accepts enforceable undertaking from Franchelen Pty Ltd
ASIC has accepted an enforceable undertaking (EU) from Franchelen Pty Ltd (Franchelen), after an investigation found they engaged in unlicensed credit activity.
ASIC's investigation looked at the financing offered by Franchelen to consumers who were purchasing units in a Sunshine Coast residential development, Ocean Reach.
ASIC found that upon completion of Ocean Reach in June 2010, Kawana Island Properties Pty Ltd, the owner of Ocean Reach, created Franchelen and provided loans totalling $7 million to 49 purchasers. These loans allowed buyers to complete their contracts. At the time the loans were offered, Franchelen was unlicensed to engage in this type of credit activity.
Franchelen has since applied for and obtained a credit licence from ASIC which is subject to the conditions in the EU.
The EU requires Franchelen to:
limit its engagement in credit activity to the management and finalisation of the 49 loans it provided
cap interest payable on the loans at the rate last negotiated with the individual borrower, and
engage an independent consultant to review Franchelen's compliance with the credit legislation and any credit licence conditions. The consultant will report to ASIC every six months until the existing loans are finalised.
Deputy Chairman Peter Kell said, 'Firms must understand and comply with the law. Further, they must ensure they are appropriately licensed to engage in credit activities.
'ASIC will act when we come across instances of unlicensed credit activity.'
Off-the-plan sales in Ocean Reach commenced in around May 2008 and construction at Ocean Reach took place between mid-2009 until about 16 June 2010.
In 2010, the National Credit Code (the Code) extended the definition of 'credit' to which the Code and the National Consumer Credit Protection Act 2010 (National Credit Act) applied to include the purchase of residential investment properties.
Individuals and/or entities involved in the residential property development and construction industries, and who want to provide any form of financial assistance to purchasers should seek independent legal advice on the application of the National Credit Act and the Code.