Illegal land banking firm closed by High Court
A company marketing plots of land as an investment opportunity has been wound-up by the High Court in Manchester following investigations by both the Companies Investigation Branch (CIB) of the Insolvency Service and the Financial Services Authority.
From February 2005 to November 2006, Sinclair Deville Limited (SDV), offered "investment opportunities" to private individuals under a scheme in which fields purchased by the company were divided into plots of land and then sold for investment purposes.
Yorkshire-based SDV was described in promotional literature as a land banking business aimed at identifying and securing prime undeveloped land before planning consent is granted. Land acquired was divided into smaller plots and sold to private individuals with a view to planning permission being obtained for the site as a whole. Investors were recruited on the basis that the value of a site would increase substantially if planning permission was obtained.
CIB's and the FSA's investigations found that SDV took in excess of £3.2m from investors on the premise that SDV would seek to secure planning permission for the benefit of the site as whole. The site would then be sold to a developer, the profit being divided amongst the plot holders.
In applying to have the company wound-up, CIB alleged that the company had taken part in the promotion of an unauthorised Collective Investment Scheme under the Financial Services and Markets Act 2000 (FSMA) because individuals were investing in a plot of land in anticipation of planning permission being obtained on the site as a whole resulting in the value of their plot increasing. Whilst individuals did own their plot separately to other investors, any application for planning permission would be made collectively on behalf of the individual plot holders by either SDV or another unidentified body using the pooled resources of the investors. Investors did not therefore have day to day control over the planning process.
The court heard that SDV was not in a financial position to repay monies taken under the scheme, much less to pay compensation to investors as required under FSMA.
The court also heard that SDV had misled investors by claiming that the company only acquired land that satisfied "stringent criteria". In fact, there was no professional vetting of sites before they were acquired by the company.
Submissions were made by the Financial Services Authority in support of the petition and, in making the Winding-up Order, the Court found that the scheme operated by SDV did constitute a Collective Investment Scheme and was, therefore, illegal under FSMA.