About Us

We work collaboratively with our clients to build strong, sustainable relationships. Our team is committed to delivering consistent high standards of service, and we understand the importance of accessibility. Working with us, you'll enjoy open communication, meaning well scoped, properly resourced and effectively managed matters.

Learn More

Latest Case

Providing strategic advice on expansion structures November 16, 2018

Founded in Bondi Beach in 2012, Bailey Nelson has rapidly grown into a global eyewear retailer and service provider with boutiques in Australia, London, Canada and New Zealand. The strong demand for their products and … Continued

Latest News

Winner of William Ah Ket Scholarship 2019 announced October 9, 2019

Wednesday 9 October 2019 A Victorian lawyer has been named this year’s winner of the William Ah Ket Scholarship. Tienyi Long, a legal and governance officer at Glen Eira City Council in Melbourne, was awarded … Continued

Latest Article

Final changes to the ASX Listing Rules announced October 15, 2019

On 10 October 2019 the Australian Securities Exchange (ASX) released its response to feedback received on its consultation paper ‘Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules’, together with the … Continued

Caution for estate agents and developers on unlicensed SMSF advice

A recent decision[1] by the Supreme Court of New South Wales highlights the need for caution when speaking to prospective purchasers regarding the purchase of properties through a self-managed superannuation fund (SMSF).

In the matter of Australian Securities & Investments Commission v Park Trent Properties Group Pty Ltd, the Supreme Court found estate agents Park Trent Properties Group (Park Trent) had systematically provided customers with financial advice regarding the establishment of SMSFs for the purpose of property investment, and accordingly Park Trent had broken the law by carrying on a financial services business without a licence.

Facts

The proceeding was brought by the Australian Securities & Investments Commission (ASIC) after a lengthy investigation concerning advice provided to more than 860 members of the public over 5 years.

Among other things, Park Trent’s business model involved conducting large-scale property investment seminars, and conducting home visits to follow up with prospective purchasers, in the course of which it sought to encourage the establishment of SMSFs for the purpose of accessing funds to invest in property.

Findings

Relevantly, s 911A(1) of the Corporations Act 2001 (Cth) provides, a person must not carry on a business of providing financial services without holding an Australian financial services licence (AFSL) covering the scope of those services.

The Court found that Park Trent’s business model involved their staff systematically giving financial product advice regarding superannuation interests – that is, making recommendations or statements of opinion that could reasonably be regarded as being intended to influence a person to:

  • establish a SMSF
  • transfer money into a SMSF, to be used for property investment
  • become a member of a SMSF.

Accordingly, the Court declared that Park Trent had unlawfully carried on a business of providing financial services without an AFSL.

Consequences

Park Trent was ordered to place a corrective notice on its website regarding the contraventions for a period of 90 days, and to pay ASIC’s legal costs.

The Court also granted a permanent injunction restraining Park Trent from providing unlicensed financial product advice to clients regarding SMSFs.

Acting Justice Sackville observed that:

[Investors] were influenced to make important decisions concerning their superannuation strategy with little or no genuine consideration of whether the decision took proper account of their individual financial circumstances. Some suffered financial loss as a consequence.[2]

It is important to note that a contravention of s 911A carries other consequences that were not sought by ASIC in the proceeding, but which might arise in other cases, including:

  • a contravention may be prosecuted as a criminal offence
  • the recipients of unlicensed advice might potentially seek damages or the rescission of any associated contracts of sale.

Lessons

Subject to certain exemptions, it is unlawful to carry on a business which involves expressly or impliedly making recommendations or stating opinions as to the establishment and use of an SMSF for the purposes of property investment, without an appropriate AFSL.

A property developer or real estate agent who does so may be unlawfully carrying on a financial services business, despite the fact their business could otherwise be described as relating to property.

A party is more likely to be ‘carrying on a business’ of providing financial services if the services are provided repeatedly, systematically or on a continuing basis[3].  In some cases, however, a single significant transaction may be sufficient to meet the threshold.[4]

In his judgment against Park Trent, Acting Justice Sackville noted the orders made were crafted so as not to prohibit activities customarily performed by estate agents on a lawful basis.[5]

In particular, it will not be unlawful for an estate agent to merely facilitate the purchase of investment properties by means of an SMSF, provided the estate agent does not provide financial advice in respect of the SMSF or its establishment.

If you require further assistance

We regularly advise developers and estate agents on all aspects of risk, regulation and compliance, and have significant experience defending regulatory investigations and proceedings.

If you require any assistance, please contact a member of our Maddocks Property & Development or Dispute Resolution & Litigation teams.

Authors
MATTHEW PECKHAM 2cm 300ppi B&W jpg 2012 Matthew Peckham | Special Counsel
Tel +61 3 9258 3648
matthew.peckham@maddocks.com.au

 

Sidenote:
SMSF borrowing and the property sector more generally
Recommendation to prohibit direct borrowing In December 2014, the Financial System Inquiry chaired by former Commonwealth Bank CEO David Murray released a report to the Government addressing a range of issues concerning Australia’s financial future. One of the Inquiry’s recommendations was that the Government restore what had previously been a general prohibition on direct borrowing by superannuation funds. In particular, the Inquiry noted a general increase over time in the use of limited recourse borrowing arrangements for the purchase of assets in superannuation funds. A change of this nature would prevent SMSFs from engaging in leveraged investment, as might typically be seen if an SMSF were used to acquire an investment property.

Government response

When the Government released its formal response to the Inquiry in October 2015, of the 44 recommendations made by the Inquiry, the recommendation that borrowing by superannuation funds be prohibited was the only one not adopted.

Continued monitoring

Although not adopting the Inquiry’s recommendation, the Government has commissioned the Council of Financial Regulators and the Australian Taxation Office to monitor leverage and risk in the superannuation system, and report back after three years.

For those with an interest in SMSFs and their impact on the property sector, this issue will be one to monitor in coming years.

ASIC’s press release regarding the Park Trent decision noted that it had established an SMSF taskforce in 2012 with a focus on potentially inappropriate geared investment, and that ‘SMSFs will be continue to be a focus in ASIC’s enforcement work’ in the future.

 

[1] Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527.

[2] Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 at [484].

[3] ASIC v Sydney Investment House Equities Pty Ltd & Others  (2008) 69 ACSR 1, at [361]-[363].

[4] See eg, comments in Smith v Capewell (1979) 142 CLR 509 at 518- 519.

[5] Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 at [512].

A recent decision[1] by the Supreme Court of New South Wales highlights the need for caution when speaking to prospective purchasers regarding the purchase of properties through a self-managed superannuation fund (SMSF).

In the matter of Australian Securities & Investments Commission v Park Trent Properties Group Pty Ltd, the Supreme Court found estate agents Park Trent Properties Group (Park Trent) had systematically provided customers with financial advice regarding the establishment of SMSFs for the purpose of property investment, and accordingly Park Trent had broken the law by carrying on a financial services business without a licence.

Facts

The proceeding was brought by the Australian Securities & Investments Commission (ASIC) after a lengthy investigation concerning advice provided to more than 860 members of the public over 5 years.

Among other things, Park Trent’s business model involved conducting large-scale property investment seminars, and conducting home visits to follow up with prospective purchasers, in the course of which it sought to encourage the establishment of SMSFs for the purpose of accessing funds to invest in property.

Findings

Relevantly, s 911A(1) of the Corporations Act 2001 (Cth) provides, a person must not carry on a business of providing financial services without holding an Australian financial services licence (AFSL) covering the scope of those services.

The Court found that Park Trent’s business model involved their staff systematically giving financial product advice regarding superannuation interests – that is, making recommendations or statements of opinion that could reasonably be regarded as being intended to influence a person to:

  • establish a SMSF
  • transfer money into a SMSF, to be used for property investment
  • become a member of a SMSF.

Accordingly, the Court declared that Park Trent had unlawfully carried on a business of providing financial services without an AFSL.

Consequences

Park Trent was ordered to place a corrective notice on its website regarding the contraventions for a period of 90 days, and to pay ASIC’s legal costs.

The Court also granted a permanent injunction restraining Park Trent from providing unlicensed financial product advice to clients regarding SMSFs.

Acting Justice Sackville observed that:

[Investors] were influenced to make important decisions concerning their superannuation strategy with little or no genuine consideration of whether the decision took proper account of their individual financial circumstances. Some suffered financial loss as a consequence.[2]

It is important to note that a contravention of s 911A carries other consequences that were not sought by ASIC in the proceeding, but which might arise in other cases, including:

  • a contravention may be prosecuted as a criminal offence
  • the recipients of unlicensed advice might potentially seek damages or the rescission of any associated contracts of sale.

Lessons

Subject to certain exemptions, it is unlawful to carry on a business which involves expressly or impliedly making recommendations or stating opinions as to the establishment and use of an SMSF for the purposes of property investment, without an appropriate AFSL.

A property developer or real estate agent who does so may be unlawfully carrying on a financial services business, despite the fact their business could otherwise be described as relating to property.

A party is more likely to be ‘carrying on a business’ of providing financial services if the services are provided repeatedly, systematically or on a continuing basis[3].  In some cases, however, a single significant transaction may be sufficient to meet the threshold.[4]

In his judgment against Park Trent, Acting Justice Sackville noted the orders made were crafted so as not to prohibit activities customarily performed by estate agents on a lawful basis.[5]

In particular, it will not be unlawful for an estate agent to merely facilitate the purchase of investment properties by means of an SMSF, provided the estate agent does not provide financial advice in respect of the SMSF or its establishment.

If you require further assistance

We regularly advise developers and estate agents on all aspects of risk, regulation and compliance, and have significant experience defending regulatory investigations and proceedings.

If you require any assistance, please contact a member of our Maddocks Property & Development or Dispute Resolution & Litigation teams.

Authors
MATTHEW PECKHAM 2cm 300ppi B&W jpg 2012 Matthew Peckham | Special Counsel
Tel +61 3 9258 3648
matthew.peckham@maddocks.com.au

 

Sidenote:
SMSF borrowing and the property sector more generally
Recommendation to prohibit direct borrowing In December 2014, the Financial System Inquiry chaired by former Commonwealth Bank CEO David Murray released a report to the Government addressing a range of issues concerning Australia’s financial future. One of the Inquiry’s recommendations was that the Government restore what had previously been a general prohibition on direct borrowing by superannuation funds. In particular, the Inquiry noted a general increase over time in the use of limited recourse borrowing arrangements for the purchase of assets in superannuation funds. A change of this nature would prevent SMSFs from engaging in leveraged investment, as might typically be seen if an SMSF were used to acquire an investment property.

Government response

When the Government released its formal response to the Inquiry in October 2015, of the 44 recommendations made by the Inquiry, the recommendation that borrowing by superannuation funds be prohibited was the only one not adopted.

Continued monitoring

Although not adopting the Inquiry’s recommendation, the Government has commissioned the Council of Financial Regulators and the Australian Taxation Office to monitor leverage and risk in the superannuation system, and report back after three years.

For those with an interest in SMSFs and their impact on the property sector, this issue will be one to monitor in coming years.

ASIC’s press release regarding the Park Trent decision noted that it had established an SMSF taskforce in 2012 with a focus on potentially inappropriate geared investment, and that ‘SMSFs will be continue to be a focus in ASIC’s enforcement work’ in the future.

 

[1] Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527.

[2] Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 at [484].

[3] ASIC v Sydney Investment House Equities Pty Ltd & Others  (2008) 69 ACSR 1, at [361]-[363].

[4] See eg, comments in Smith v Capewell (1979) 142 CLR 509 at 518- 519.

[5] Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 3) [2015] NSWSC 1527 at [512].