The Australian Securities and Investments Commission (ASIC) has recently brought proceedings against a number of companies involved in land banking schemes, including most recently, Bilkurra Investments Pty Limited (Bilkurra) and Foscari Holdings Pty Limited (Foscari) (Australian Securities and Investments Commission v Bilkurra Investments Pty Ltd & Ors [2016] FCA 371).

In December last year, ASIC made an application in the Federal Court of Australia seeking orders that Bilkurra and Foscari be wound up on just and equitable grounds or, in the alternative, on the basis that they were insolvent.  Both of Bilkurra and Foscari were involved in land banking schemes which involved investors purchasing an option to acquire a lot (or parcel) of land or purchasing a lot in an unregistered plan of subdivision with the promise of high returns at the end of the development.  The investors were largely unsophisticated ‘mum and dad’ investors and as such the Court held that they were likely to have been induced to invest in Bilkurra and Foscari  by misleading representations or misleading or deceptive conduct on the part of the promoters.

Despite resistance by certain parties to ASIC’s application, the Court made the winding up orders against Bilkurra and Foscari and, in so doing, reached the following conclusions:

1. Both companies were ‘cash flow’ insolvent;
2. The Court had no confidence in the management of either company;
3. Both companies had failed to maintain proper books and records; and
4. Both companies were knowing participants in schemes that allowed for the misappropriation of investors’ funds.

The Court noted that one of its main considerations in making the winding up orders was the protection of the public interest.

This case follows on from the related decision in Australian Securities and Investments Commission v Midland Hwy Pty Ltd (administrators appointed); in the matter of Midland Hwy Pty Ltd (administrators appointed) [2015] FCA 1360 in which the Federal Court set aside a resolution of the creditors of Midland Hwy Pty Limited in favour of that company entering into a deed of company arrangement and made orders that the company be wound up on a similar basis to the present case: that is, aside from insolvency, there was a public interest issue involving the procurement and use of investor funds that required proper investigation by a liquidator.

In both decision, the Court has been concerned with public interest considerations and the cases are demonstrative of how extensively the Courts will be prepared to factor public interest related issues into the determination of winding up applications on just and equitable grounds.

For more information please contact ERA Legal.