Investment fund to receive public warning from Asic over Dunk Island redevelopment | Australia news
An investment fund that has recently been making coronavirus-linked pitches to investors about its redevelopment of Queensland’s Dunk Island will be given two days’ notice before the corporate regulator issues a public warning about the company over previous marketing material.
In the past two weeks Mayfair 101 has been advertising its investment products as a way to “keep ahead financially”, but has also begun indefinitely delaying up to 60 outstanding property settlements in Mission Beach, which neighbours Dunk Island, citing its inability to pay due to the coronavirus pandemic.
The Australian Securities and Investments Commission (Asic) has been investigating marketing material pumped out by companies in the Mayfair 101 group for two years, the federal court has heard.
In submissions to the court, lawyers for the Mayfair 101 group and its founder, James Mawhinney, said that Asic wanted to “warn investors about the high risk of investing in these products”.
Asic’s governing legislation allows it to issue warning notices if it thinks investment laws might have been broken and investors are likely to suffer.
But during a hearing on Thursday afternoon, held by phone hook-up due to the virus crisis, counsel for Mayfair 101, Sam Hay SC, said Asic’s proposed decision was unreasonable and his clients had not been given a proper opportunity to respond to the regulator’s concerns.
He said Asic had not taken account of material put on Mayfair 101’s website on Wednesday that included a warning that the group was not a bank and investments in its products “may therefore be seen to have a higher risk relative to a bank term deposit”.
Judge Jonathan Beach said Asic’s complaints about Mayfair’s promotional output did not appear to relate to material published after the end of 2019.
He ordered Asic to give Mayfair 101 48 hours notice before publishing any warning so that the company has time to come back to court with any objections.
In advertisements in News Corp newspapers last Wednesday, Mayfair 101 said the coronavirus outbreak, the bushfires and an abundance of cheap capital meant that “the RBA has little choice but to cut interest rates further in 2020”.
“Our recent investment in Mission Beach and Dunk Island is … providing a bright future to a community that has been neglected for nearly 10 years,”it said in the full-page advertisement.
Two days earlier, Mainland Property Holdings, a $2 Mayfair 101 group company, began postponing property settlements in Mission Beach. .
In several cases, the settlement was called off less than 24 hours before it was due.
In a letter obtained by Guardian Australia, sent to Mission Beach residents whose property sales to Mayfair had not settled, a solicitor tells them “the coronavirus pandemic has impacted the ability of my client to fulfil its obligations under the contract”.
The solicitor says this is “due to the unprecedented and unexpected tightening of credit markets”.
“The coronavirus pandemic has disrupted the normal function of the Mayfair 101 group [and] forced the group to adjust its forecasts for the group’s liquidity profile and implement capital prudency plans to protect its investors.”
Documents obtained by Guardian Australia indicate Mayfair 101 entered into contracts to settle on 68 properties at Mission Beach between March 16, when the letter was sent, and August. The outstanding financial commitments on those settlements are more than $50m.
The company has exercised a “materially adverse event” clause under the contracts it negotiated with sellers, many who had not had offers on their properties for years. Under the terms of the clause, which is usually used in large acquisitions or project financing transactions, settlement can be delayed indefinitely without breach of the contract.
In a statement published on Tuesday last week, Mayfair said it had suspended “settlements of a selected number of properties”. It is unclear how many of the 68 outstanding transactions are affected, though a large tranche had been scheduled to go through last week. Guardian Australia understands the suspended transactions include some of the best-positioned beachfront properties.
Several now-desperate property sellers in Mission Beach have told Guardian Australia they had made financial commitments – including obtaining bridging finance to purchase property elsewhere – on the basis of their contracts with Mayfair.
Two families said they had sent most of their belongings to near Brisbane preparing to move; one had sold their mattress to a friend and had to ask for it back.
“People have cleared pantries, fridges and freezers, so at this time when buying food has become difficult, they are left with an empty house and no supplies,” one resident said. “The fact they’ve pulled the plug so late is going to cause huge problems. It’s a very divided community, a lot of people have said they’re desperate for investment, but if people are hurt in the process patience will wear thin.”
It is understood some have sent letters of demand to Mayfair, insisting they proceed with settlement or release property owners from their contracts.
Bonny Bauer, a resident running in council elections on Saturday, said people had placed “a lot of faith in Mayfair”, partly because they had the strong backing of the local council.
“I do think sentiment is starting to turn,” Bauer said. “It’s the entire community that will be losing out because of this.”
In its statement, Mayfair says it has settled more than 130 properties and that the suspension of some settlements was a “prudent measure” until the chaos of the coronavirus pandemic passes.
“The Mayfair 101 Group remains committed to finalising our purchases and continuing with our development plans for Mission Beach,” it said.
“When we embarked on this journey over six months ago, we said it would take ‘time, patience and perseverance’, and the community needs to be mindful of the challenges being posed on the health and financial systems globally.
“The group has the support of some significant investors who consider our strategy in Mission Beach to be timely given the desire for people to live in lower-density regions. Ultimately an increase in domestic tourism is inevitably going to benefit Mission Beach and we are already fielding enquiries from people wanting to buy land on Dunk Island.”
Mayfair 101 did not respond to questions about whether it had the capital to fund outstanding settlements, or whether new investors were now required to meet those longstanding commitments.
It also did not respond to questions about whether its full-page advertisements were misleading, given a solicitor for Mainland had written to property owners claiming the coronavirus pandemic had “disrupted the normal function” of the fund.
In an application filed with the federal court, Mayfair 101 said Asic informed it about the impending warning notice last Tuesday.
Asic’s draft notice said it was also concerned that the types of investments the Mayfair 101 group was making “may not be aligned with the promises to investors,” Mayfair 101 said in its court application.
The regulator gave Mayfair 101 until 5pm on Friday to respond, but told the company it “does not negotiate the content of public warning notices”.
After a flurry of legal correspondence, Asic extended the deadline for a response to midday on Wednesday.
However, Mayfair 101 had already launched legal action after lodging paperwork with the court on Tuesday.
During the hearing on Thursday afternoon, Mayfair 101’s counsel, Hay, unsuccessfully tried to convince Beach that the application contained confidential information and should not be provided to media including Guardian Australia.
However, the court had already provided the document to Guardian Australia.