ASIC acts to wind up a land banking scheme

ASIC has started legal action in the Federal Court in Melbourne to wind up a land banking scheme known as the Realestate Equity Investment Trust (REIT) and an associated company, Timeline Project Management Pty Ltd (Timeline).

The REIT scheme owns land located at Flinders Avenue in Lara, Victoria.

ASIC understands that at least 82 investors have invested a total of at least $800,000 into the REIT scheme and that, since 2013, investors have been making payments in respect of their investment to Timeline.

Lotus Pty Ltd (in liquidation) was the responsible entity which managed the REIT scheme until 21 September 2016 at which time its Australian financial services licence was cancelled by ASIC for various compliance breaches.

It was placed into liquidation on 14 December 2016, on the application of a creditor.

ASIC alleges that REIT is operating as a managed investment scheme in circumstances where it has no responsible entity and no reasonable prospects of obtaining one.

The matter is listed for hearing at the Federal Court in Melbourne on 4 August, 2017 at 9.30am.

These proceedings are part of ASIC's wider and ongoing investigation into land banking schemes.

1. What steps has ASIC taken?

Following an investigation, ASIC started proceedings on 25 July, 2017 in the Federal Court of Australia to wind up:

• Realestate Equity Investment Trust (ARSN 094 623 515) (REIT), and
• Timeline Project Management Pty Ltd (ACN 145 830 851) (Timeline).

If ASIC's application is successful then liquidators will be appointed to REIT and Timeline.

2. Why did ASIC issue the proceedings?

REIT is a land banking scheme which owns land at 490 Flinders Avenue, Lara, Victoria, which was intended to be rezoned and developed.

ASIC understands that at least 82 investors have invested at least $800,000 in the REIT scheme.

Lotus Securities Pty Ltd (Lotus) was the former responsible entity of REIT.

On 21 September 2016, ASIC cancelled the Australian financial services license (AFSL) of Lotus due to a number of compliance concerns including failure to lodge financial statements for Lotus (for the years 2014 onwards) and REIT (for the years 2012 onwards). 

Lotus was not permitted to act as a responsible entity following the cancellation of its AFSL and no new responsible entity has been appointed.

Lotus is now in liquidation, having been wound up by the Court on 14 December 2016, on application by a creditor. 

ASIC understands that, since June 2013, investors have been making payments in respect of their investment to a bank account in the name of Timeline.

Timeline is not (and has never been) the responsible entity of REIT.

ASIC commenced these current proceedings to protect the interests of investors in the REIT scheme given ASIC’s allegations in the proceedings that, amongst other matters:

• REIT has been operating despite it not having a validly appointed responsible entity as required under the Corporations Act 2001 (Cth) (the Act)
• the REIT scheme appears to be unviable given that there has been no progress in developing the real estate investments of the fund since the initial fundraising
• financial statements for REIT have not been prepared or lodged with ASIC since 2012, and
• the interests of investors appear to be prejudiced due to the fact that they are still paying monies apparently into the scheme via a bank account held by Timeline.

3. What orders does ASIC want the Court to make?

ASIC is seeking orders from the Court to wind up, and to appoint liquidators to, each of REIT and Timeline.

The application is listed before the Court on 4 August, 2017.

4. Will investors get a refund?

ASIC is not seeking compensation or refunds for investors in these proceedings. 

However, if the Court orders the winding up of REIT and Timeline there may be a return to creditors as part of the liquidation process.

The realisation of assets and any distribution to investors will be undertaken by the liquidators appointed by the Court.

5. What rights do investors have?

ASIC is unable to advise investors as to any rights that they may have in relation to ASIC's application.

If investors wish to be represented at the hearing of ASIC's application, then they should seek legal advice.

Investors may also wish to seek independent legal and/or financial advice in relation to their investment in the REIT scheme.