ASIC seeks windup at land banking Hermitage Bendigo and Veneziane, Brookfield

ASIC has started legal action in the Federal Court in Melbourne to wind up companies associated with two land banking schemes operated in Victoria and to disqualify Michael Grochowski and Ian Edward Stephens from managing corporations. 

The two land banking schemes are known as:

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

ASIC is seeking to appoint liquidators to four development companies which operated, or were associated with, the land banking schemes.  The development companies are:

• Brookfield Riverside Pty Ltd (ACN 159 111 047);
• Bilkurra West Pty Ltd (ACN 169 059 143);
• Bilkurra South Pty ltd (ACN 602 374 390); and
• Gillies Road Pty Ltd (ACN 163 866 724).

ASIC is also seeking to appoint liquidators to Project Management (Aust) Pty Ltd (ACN 151 902 126) (PMA) and is seeking orders disqualifying Mr Stephens and Mr Grochowski from managing corporations for such period as the Court considers justified. 

ASIC alleges that PMA, Mr Stephens 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 under the control of Mr Grochowski.

ASIC is concerned that the development companies and PMA are insolvent and that it is just and equitable that the companies are wound up. 

ASIC's investigation suggests that the development companies raised in excess of $15 million from unsophisticated investors by the sale of options to purchase land or off the plan contracts of sale in land proposed to be developed by the development companies.

However, the development companies have never owned the land.  

ASIC's investigation also suggests that attempts by the development companies to purchase the land have failed and that the developments are therefore unable to proceed or to be completed.

ASIC is also concerned that monies raised from investors have been transferred between a number of companies without any apparent concern for obligations that might be owed to those investors and that the majority of funds raised from investors have been dissipated.

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 and Bilkurra Investments Pty Ltd operating the Hermitage Bendigo scheme; and
• Foscari Holdings Pty Ltd operating the Foscari scheme in respect of land at 99 Palmers Road, Truganina.

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.

ASIC's winding up application is to be listed by the Court for a hearing to be held after June 2018.