Rant: Time we jailed serial ‘phoenix’ developers?

shutterstock_95385994.jpg

A couple of stories have come to my attention in the past couple of days that, frankly, have me lurching from rage to revulsion.

In both cases, highly profitable development companies have gone into liquidation, leaving creditors high and dry and allowing them to start up again to do the same to other trusting – no, let’s make that naïve – purchasers. It’s called “phoenixing” – it should be called fraud.

In one example, the developer of an apartment block that made double the profit than was expected has gone bust.  How you can go broke when you have made much more than your business plan allowed for is beyond any logic or indeed morality.

The unit block had “mysteriously” gone over its expected completion date, allowing the developer to rescind some of the off-the-plan contracts under their sunset clauses. I say mysteriously because those off-the-plan purchasers had received letters telling them to get ready to move in.

Then, even more mysteriously, within days the developers put the near-completed apartments back on the market for half as much again as the original price. That represents, conservatively, a doubling of their profit margin.

The developers had clearly decided that they were the only people who should benefit from the property boom, rather than the savvy or lucky investors and home buyers who had financed the project.

You can only wonder, if house prices in Sydney had been going down, would those buildings have been finished in plenty of time, just so there was no way the purchasers could have wriggled out of a bad investment?

Such obvious exploitation of sunset clauses prompted the government to change the laws late last year, making it a lot harder for any unscrupulous developers to swing the lead, delay completion and invoke their grubby little plans with no thought for the people whose money had been tied up for two years while the property market boomed.

It was a double whammy for the “smart” buyers.  They lost the homes they thought they had bought and had to get back into the market where their money was worth a lot less.

And, to put icing on the cake, when it looked like the original purchasers might win a class action court case against the developer, suddenly the company was liquidated with no funds to pay any compensation that might be awarded.

These guys just can’t lose, can they? And it’s not as if they would have lost anything if they’d just gone ahead with the original contract.  But there was a pot of extra gold that they must have and their customers could go whistle.

In the other case, a widow whose husband was part of a small property development consortium has just been told that his share of the company was worth a fraction of what she thought it was worth. This company had been successfully building unit blocks for years – the last one being worth roughly $20 million.

Unfortunately for the woman who had just lost her husband, after every successful project, the development company was drained of its funds and liquidated so that, for instance, apartment buyers wouldn’t be able to make any claims for defect rectification.

The loss of her husband aside, it’s otherwise hard to feel too much sympathy for someone who has doubtless been living well off the profits from these “failed” companies.  But it does expose another aspect of this venal trade that allows the lowest of the low to make millions while ordinary home owners are cheated out of their hard-earned money.

What kind of legitimate business can successfully complete a project and then have nothing in the bank.  What kind of business plan is so bad that even a doubling of profits leaves the people who devised it bankrupt?

It is because owning a home is such an important part of the Australian psyche that dodgy dealers are allowed to flourish, strutting around among us as if they were in some way superior, rather than the scumbag low-lifes that they really are.

For heaven’s sake, we even elect them to our local councils where they can play fast and loose more freely with our laws.

And it is because home ownership is so important to many of us that they need to be put on the wrong side of the law, where they belong.

Anyone who is a director of a development company that goes bust – and hey, it happens for legitimate reasons – should have to declare that on any sales information for future projects.

If it happens again, they should be forced to take a TAFE course in basic business management and ethics before they can work in property development in any capacity again.

If they go bust a third time, send them to jail where they can hang out with their peers – pimps, drug dealers and fraudsters.

Serial phoenix scheme developers are the slimy underbelly of the property business in this company and the longer they are allowed to practise their sleazy trade with impunity the harder it is for honest traders to build homes for ordinary people.

And, by the way,  anyone who invests in an apartment block without first checking up on the directors needs their head examined.

Go to the ASIC website do a search for the company and get the directors’ names. Then check the names on the same website to see if they have been involved in previous companies that have gone bust.

If they have a lot of failed companies – or have never done any development before – be very wary.  To be doubly sure, go to the Austlii website and see if they have been involved in any legal wrangles at NCAT, the CTTT or the Supreme Court.

All you need is an internet connection and a little patience. Or you could just bet more money than you have ever known on the Russian roulette that property buying has become.

Leave a Reply

scroll to top