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Property company wound up for misleading investors (9 March 2016)

Date: 09/03/2016
Duncan Lewis, Legal News Solicitors, Property company wound up for misleading investors

A Manchester-based company which made false and misleading claims to persuade members of the public to invest in residential properties has been wound up in the High Court, following an investigation by the Insolvency Service.

Newbury Venture Capital Ltd – in association with the companies Hometrader Group Plc and Hometrader (North West) Ltd – operated property investment schemes, including one known as the Privilege Club.

The club charged members a fee which entitled them to access a website listing properties for sale, purportedly at discounted prices – the properties were owned or sourced by the companies.

Privilege Club members would pay a deposit of 25% of the purchase price with the balance of 75% to be financed by a buy-to-let mortgage.

After purchase, the 25% deposit was to be returned to the investor as a discount on the purchase price.

A separate Joint Venture scheme operated by Newbury Venture Capital Ltd allowed investors to invest in property (owned by one of the companies or the companies’ director), with the intention that the property would be renovated and sold and the profits would be shared between Newbury Venture Capital Ltd and the investor.

The Insolvency Service investigation found that the companies and the investment schemes had operated under the broad Hometrader brand –
as a result, it had not been possible to disentangle their trading activities.

The companies had also failed to maintain accounting records which explained which funds had been received from the different investors and how they had been used. Incomplete records produced suggest that at least 482 investors had invested £9.3 million in the Joint Venture scheme and there had been at least 228 members of the Privilege Club, who had paid membership fees of up to £5,000 each.

Joint Venture investors were promised a profit on their investment of 20-50% within 26 weeks – or, if the property was not sold within this timescale, a refund of the initial investment, plus £2,500.

However, no evidence produced by the companies shows that any investors in any of the schemes had made profits – and all investors contacted by the investigators had, in fact, suffered losses and had been unable to obtain a refund on their initial investment.

Joint Venture investors were told that they would have security in the form of a legal charge over the properties purchased, whereas many of the investors were given no such security – and investors were also led to believe that they would be the only investor in relation to each specific Joint Venture property; however, the companies received investment funds from multiple investors in relation to the same property.

There had also been no independent valuations of the properties prior to them being offered to investors – and it was subsequently found that property values had been overstated.

The intention in the Privilege Club scheme that members obtain a refund of the 25% deposit on the property price while obtaining a buy-to-let mortgage for the 75% balance, represented a potential fraud on the mortgage providers, the investigation concluded – and there were “substantial unexplained transactions” with the companies’ director and connected parties.

Investigation Supervisor Colin Cronin said:

“In ordering Newbury Venture Capital Ltd into liquidation, the court found that the company had operated with both a lack of transparency and a lack of commercial probity, had adopted misleading sales practices and failed to keep proper accounting records.

“When the company was challenged to show examples of investors who had made profits on their investments, no such evidence was forthcoming.

“These winding-up proceedings show that the Insolvency Service will take firm action against companies which are found to be operating against the public interest.”

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