Unlicensed credit activity engaged in by Sunshine Coast apartment developer for 49 buyers
An enforceable undertaking has been accepted by ASIC from Franchelen Pty Ltd, as a result of an investigation that found they had engaged in unlicensed credit activity in relation to off the plan apartments.
Sunshine Coast residential developer, Kawana Island Properties Pty Ltd, created Franchelen to provide loans totalling $7 million to 49 different property purchasers of off the plan properties in Ocean Reach.
The sales in Ocean Reach began in May 2008, with construction taking place between mid-2009 and 16 June 2010. During 2010, the National Credit Code extended the definition of credit to include purchasing residential investment properties.
Back in 2010 the Sunshine Coast Daily reported that all 100 apartments in the $78 million development were sold ahead of the official launch. The development featured a lagoon pool, a heated lap pool, a 14 person spa, a theatre with cinema quality sound and tiered recliner seats.
In June 2010, Ron Grabbe and Rob Gowland created Franchelen for the sole purpose of providing finance to these borrowers and established themselves as directors. The enforceable undertaking explains that on completion of contract, some of the purchasers requested that Kawana Island Properties provide financing for a portion of the purchase price.
Franchelen provided finance to the borrowers for the difference between purchase price and the loan that the borrowers could obtain from a commercial lender.
The loans provided by Franchelen assisted buyers to complete their contracts, however at the time Franchelen offered the loans they were unlicensed. Franchelen has since applied for and obtained a credit licence.
The Enforceable Undertaking requires Franchelen to limit its credit activity to the management and finalisation of the 49 loans, cap interest payable at the rate last negotiated with each individual borrower and engage an independent consultant to review compliance with credit legislation.
A number of the loans were said to be refinanced one or more times.
The investigation began in April 2013, after Franchelen suspended the collection of payments from the borrowers on the loans in January 2013 - acting on a notification from ASIC of their concerns.
RGD Constructions developed Ocean Reach, of which Grabbe has been the director of since 2002.
Franchelen had obtained legal advice that noted it was not required to hold an ACL to conduct its activities - which they now accept was not correct advice. ASIC accepts that they genuinely misunderstood the requirements.
Franchelen will cease credit activities when the loans are finalised, as well as engage in correspondence with current borrowers, including to notify that the loans will be capped at the rate it was last negotiated with the borrower - ranging from nine to 11%, "notwithstanding that the loan agreements entitle Franchelen to charge interest at 15%".
Deputy chairman of ASIC, Peter Kell, expressed the importance of firms understanding the rules around legal compliance.
“Further, they must ensure they are appropriately licensed to engage in credit activities,” said Kell.
“ASIC will act when we come across instances of unlicensed credit activity.”