$15 million land banking schemes, Hermitage Bendigo and Veneziane to be wound up

The Federal Court of Australia has made orders winding up five companies involved in two land banking schemes known as:

• Hermitage Bendigo (formerly Acacia Banks) located at Midland Highway, Bagshot, Victoria; and
• Veneziane, located at Brooklyn Park Drive and Balmer Grange, Brookfield.

The following four companies entered into contracts for the purchase of land for rezoning and were involved in the promotion of the schemes and received money from investors:

• Brookfield Riverside Pty Ltd
• Bilkurra West Pty Ltd
• Bilkurra South Pty Ltd, and
• Gillies Road Pty Ltd.

The fifth company, Project Management (Aust) Pty Ltd (PMA), entered into project management agreements with each of the Project Companies that required the Project Companies to deposit all project revenues into bank accounts maintained by PMA.  This enabled PMA to exercise control over the Project Companies' finances.

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 developed, 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.

Investors should be vigilant when investing in such schemes and seek independent legal and financial advice.  Investors should also assess their risk tolerance for this type of scheme.  ASIC notes that many of the promoters of land banking schemes offer access to lawyers and financial advice, but is concerned that those advisors may not be independent.

These types of investments may constitute a managed investment scheme and/or a financial product.  Developers and promoters should therefore hold an Australian Financial Services Licence and register these schemes with ASIC.

Nicholas John Martin and Andrew Thomas Sallway of BDO Australia were appointed liquidators of PMA and the Project Companies.

ASIC sought these orders as it was concerned that the project companies were insolvent, that $15 million money raised from investors had been transferred between companies without any apparent concern for obligations owed to investors and that the majority of funds raised from investors had been dissipated.

The Court found that the case for winding up each of the companies was compelling.

The companies were wound up on the basis that they were insolvent and that it was just and equitable to do so.

PMA consented to the winding up order being made.

In concluding that it was appropriate to wind up PMA on the just and equitable ground the Court found that its financial affairs were inextricably bound up with those of the Project Companies; that PMA had control over investor monies; it had intermingled funds and used them across the various land banking schemes; it had maintained poor documentation; and it took management fees out of the investor funds released to it.

ASIC Commissioner John Price said, ASIC will take action against entities that run schemes where investor monies are put at risk. 

"Investors should be very careful in ensuring that they understand the risks associated with land banking schemes and should ensure that they obtain independent legal and financial advice before making any such investments," he said.

ASIC filed its application to wind up PMA and the Project Companies on 26 March 2018. 

This application also seeks to disqualify Michael Grochowski and Ian Edward Stephens from managing corporations. This application will be heard by the Court on 17 September 2018.

This proceeding is part of ASIC's wider and ongoing investigation into land banking schemes. 

ASIC has already taken action in respect of:

• Midland Hwy Pty Ltd (Midland) and Bilkurra Investments Pty Ltd (Bilkurra) operating the Hermitage Bendigo scheme (Refer: 16-114MR); and
• Foscari Holdings Pty Ltd (Foscari) operating the Foscari scheme in respect of land at 99 Palmers Road, Truganina.

ASIC provided funding from its Assetless Administration Fund to the liquidators of Midland, Bilkurra and Foscari to enable the liquidators to conduct further investigations, including public examinations of individuals associated with those companies.

The liquidators also provided assistance to ASIC in its application to wind up the Project Companies and PMA.