Development project - failed and repossed; what to do next?

Discussion in 'Legal Issues' started by PeterProperty, 26th Mar, 2017.

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  1. PeterProperty

    PeterProperty Active Member

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    Hi guys,
    Hoping to get your thoughts on a situation my little cousin is in.

    It's basically a development project that has gone bad.
    It unfortunately involves family and a trusted family accountant (perfect storm).

    In late 2015 my cousins accountant bought a development site with a development partner. Intention was to build and sell townhouses via an 18 month project.

    A portion of the original purchase was funded through a bank loan (about 60%), and the rest was funded through private investors.

    The family accountant organised these private investors and the funds were transferred to him (this is documented). These funds were "loaned" to the accountant.

    The contact point for my cousin was the family accountant, he didn't even know who the other development partner was (was all arms length).

    The private investors were to receive interest payments paid at 15% pa and this was to be paid each 6 months. All funds were to be repaid when everything was sold, at the 18 month mark.

    Supposedly all was going well. Plans and permits were approved. Presale interest was there. The first 6 months of interest payments was paid to the private investors too.

    And then, drum roll, it all turned sour. This next part is still a little unclear at the moment.
    The accountant says him and the partner have had "disagreements", fast forward a few months, and the bank has repossed and sold the development site at auction.
    Everyone is still trying to work out what has happened.

    The auction has taken place and the sales price was actually pretty good. But of course the bank loan (and the banks legal fees) will get paid out first.

    The accountant has been saying he's unsure how much money will be left over to repay all investors. He says some of his money went into the project too. He is genuinely distressed about it all.

    At the moment, I'm just trying to help my cousin work out options on what to do next.

    The accountant has said they are starting legal proceedings against the other development partner.
    But the private investors, paid their funds to the accountant...

    Obviously, its hoped all original invested funds can be repaid at settlement (unlikely though). But if they can't, what can the investors do?

    1) Can they start legal proceedings for just the invested capital or the total interest payments too?
    And against who? The accountant?

    2) Would they do this together as a group, or separately/independently?

    3) Settlement is still a few months away (I.E unsure how much will be left over), but can legal proceedings start now?

    4) Because these were funds "loaned" to the accountant, does that change the situation?

    4) Would going through VCAT be appropriate?

    5) Are there other avenues they can take?

    Just keen on your thoughts on best way forward and what the options may be?

    Thanks everyone
     
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  2. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I think a lot will come down to who were the registered owners of the site. If it was the parter and the accountant and the accountant raised his share through investors that loaned to him personally then they can only claim against the accountant.

    It sounds like an extremely poor set up deal and the accountant should have known much better even though it's a legal/structure issue.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It will come down to who contracted with who.

    If your cousin lent money to the accountant he contracted with the accountant so could try to recover his money directly from the accountant.

    Are there any companies involved? Any trusts?
     
  4. MTR

    MTR Well-Known Member

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    Just looking on the surface this could get very messy unfortunately.
     
  5. MTR

    MTR Well-Known Member

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    There was a thread recently regarding ADVICE..... I guess this could be a thread where professional advice is required, rather than opinions?? as we could be way off the mark???
     
    Last edited: 26th Mar, 2017
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  6. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    The loan documents that your cousin signed should be the first place to start - take them to a reputable lawyer NOW and work out if he has a claim against who and what.

    My personal and most likely crap opinion is to put a caveat on the site and actually delay settlement until this has been worked out as once the bank distributes funds there is very little going back.

    At 15% interest non secured loan (presumably) all the investment parties had to know it was pretty risky. What due diligence did they do before signing up? or did they expect that as it was their accountant (who holds no legal or financial advice qualifications presumably) that it would be ok. I'd be suing the pants off the accountant too
     
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  7. Blacky

    Blacky Well-Known Member

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    While this MAY be a good option, it may also be a very bad one!

    Depending on the contracts the cousin may not have a caveatable interest in the property. If they do lodge a caveat without cause it can land them in deep(er) water.

    As Terry stated it will all come down to the actual contracts in place. who - and how - was everything contracted.
    Either way, it will be a costly exersisse for everyone involved.

    Suggest calling a good property lawyer first thing Monday morning. Drop @TerryW a note. He is NSW based, however, if he doesnt cover the state you are in he may have some good connections/reccomendations.
    It wont be cheap, but it will be worth it.

    Blacky
     
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  8. hobo

    hobo Well-Known Member

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    I read it as, 1 - talk to your lawyer, and 2 - make sure a caveat is discussed as an option (I assume any good lawyer will consider that anyway, but just in case).

    Either way, I completely agree lawyer is most definitely Step Number One.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    There is probably not a caveatable interest. And lodging a caveat may go against you too - say it prevents settlement occuring, this may mean a costly resale is needed plus further holding costs and further legal fees.
     
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  10. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Oh I totally agree that a caveat might not be just or the right thing to do but sometimes it gets attention and people hold up their end of the bargain so that settlement can occur.
     
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  11. PeterProperty

    PeterProperty Active Member

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    I'm still trying to research into the details, but my current assumption is the accountant and partner were the registered owners. Yes, the accountant raised his share through the investors.
    I've mentioned to my cousin that he would have to claim against the accountant. But should we
    - start the claim now, OR
    - wait for settlement to work out how much money is left over?
     
  12. PeterProperty

    PeterProperty Active Member

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    Still trying to work through what companies and trusts involved. But the initial investor funds, were transferred into a company (I'm unsure if that company is the land owner though)
     
  13. PeterProperty

    PeterProperty Active Member

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    I think because the accountant is the trusted family accountant, my cousin felt things will be OK. This will get messy before it is over, but can VCAT help with this at all? Or is it straight to a property lawyer time?
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    First you have to determine who is liable.Then you need to determine what the terms of the agreement with them out and then you need to consider whether it is worth pursuing them for the return of the money.

    If you gave money to entity A and it was transferred to entity B you may still be able to recover it from B, in certain situations.
     
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  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You should see a litigation lawyer
     
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  16. Blacky

    Blacky Well-Known Member

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    +1 Lawyer up!
     
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  17. PeterProperty

    PeterProperty Active Member

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    Thanks Terry
     
  18. Agent30yrs.

    Agent30yrs. Well-Known Member

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    ++ Lawyer up. And not his best mates uncle because he will do it cheap....
     
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  19. TMNT

    TMNT Well-Known Member

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    if development projects are supposed to be this messy, I can see why you need very good margins to do it,

    I am getting a headache just reading it.....sorry to hear
     
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  20. Brady

    Brady Well-Known Member

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    Don't think this is just developments being messy, but JV.
     
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