Shariah law loan emerges as Timeline's $800,000 Lara land banking scheme wound up by Federal Court

The Federal Court in Melbourne has ordered that a land banking scheme known as the Realestate Equity Investment Trust (REIT) and an associated company, Timeline Project Management Pty Ltd (Timeline), be wound up. 

REIT is a managed investment scheme that owns land located at Flinders Avenue in Lara in Victoria (below).

At least 82 investors have invested approximately $800,000 into the REIT scheme.

ASIC advise a large amount of the money paid to Timeline has been withdrawn and the balance of that account is now approximately $45,000.

The Lara Property was purportedly mortgaged in favour of a Shariah law lender known as Equitable Financial Solutions Pty Ltd (EFSOL) without the consent of the custodian of the Lara Property, Perpetual, and without that mortgage being registered with the land titles office.

ASIC advised the court the land had purportedly been mortgaged in favour of EFSOL for an amount of between $400,000 and $507,000.

The 2016 agreement, made under Shariah law, contemplates the transfer of the Lara Property to EFSOL and Lotus jointly, with EFSOL owning a 52 per cent share and Lotus owning at 48 per cent share.

The value of EFSOL’s share is expressed to be “consideration of $507,000” with $400,000 being paid into a solicitor’s trust account and $107,000 stated to be for services provided by EFSOL to Lara, including “back office support, front office support and underwriting of any financial costs to Lara if REIT is unable to fund it. 

It is not clear to ASIC where or why most of that money has gone as contrary to its legal obligations, no financial statements have been prepared for the REIT scheme for 5 years, ASIC advise. 

Since 2013, investors have been making payments in respect of their investment to Timeline. The Court orders have been issued in English, Arabic and Somali given the source of the investors.

ASIC’s concerns included that:

• REIT had been operating despite it not having a validly appointed responsible entity;
• REIT appeared unviable given there had been no progress in, nor prospect of, developing the Land;
• financial statements for REIT had not been prepared or lodged with ASIC since 2012; and
• the interests of investors appeared to have been prejudiced by the operators of the scheme, including the dissipation of investors’ money by management to entities unrelated to the scheme.

ASIC Commissioner John Price said, ASIC will take action against unlawful managed investment schemes and the parties that run such schemes.

"Unlawful schemes such as land banking put investors' money at risk and investors should be very careful in checking whether schemes are legitimate before putting up their hard-earned money," John Price said.

Nicholas John Martin and Andrew Thomas Sallway of BDO Australia have been appointed as receivers of the property of REIT, liquidators of Timeline and to ensure that REIT is wound up in accordance with its constitution and the Court’s orders. 

Mr Martin and Mr Sallway are required to undertake a range of investigations into the affairs of REIT and Timeline, including to:

• identify any assets and creditors;
• identify unitholders in REIT and verify the amount invested by each unitholder;
• determine the validity and value of any claims on the Land;
• determine the nature of any potential claims against Timeline or REIT; and
• once the pool of available funds has been determined, calculate the distributions that may be made to unit holders in REIT and any other creditors.

The orders also provide that Mr Martin and Mr Sallway are to take all reasonable steps to procure an enforceable offer to purchase the Land from another company, Equitable Financial Solutions Pty Ltd.

Mr Martin and Mr Sallway will report to the Court by 9 March 2018 with its listed for a case management hearing on 20 March 2018.

ASIC filed an application to wind up REIT and Timeline on 25 July 2017.

This followed the cancellation of the Australian financial services licence held by Lotus Securities Pty Ltd (Lotus), the responsible entity that managed the REIT scheme until 21 September 2016. Lotus was placed into liquidation on 14 December 2016, on the application of a creditor.

Lotus had secured debts totalling $700,000 and unsecured debts totalling $150,000.

Half the purchase price of $975,000 in 2010 was funded by private investors. 

ASIC said John Isaacs, who was investigated by ASIC, has been involved with the management of REIT and Lotus and is connected with other entities involved in the scheme. The management of REIT, Lotus and Timeline includes Mr Isaacs, who has been involved with the management of REIT and Lotus and is connected with other entities involved in the scheme and Natalie McKeown, Mr Isaacs’ partner. Mr Sharmarke Mohamed Ahmed, a friend of Mr Isaacs, was the purchaser under the original contract of sale of the Lara Property.

From around 2011, the REIT investors purchased units in the Lara Syndicate for at least $7,000 each as an initial deposit and paid a minimum of $300 per month under a “savings plan.”

Investor monies were being paid into Timeline’s account from June 2013 up until at least June 2017, notwithstanding that Timeline was deregistered on 25 January 2015 and Lotus had its AFSL cancelled on 21 September 2016.

An amount of $308,212.90 was received through the Paygate system from June 2013 to June 2017, from investors in REIT, by way of recurring deposits. 

ASIC is concerned that no steps have been taken to develop the Lara Property and on current information it appears that the development of the property cannot go ahead.