Monday 14th March 2016 |
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The Serious Fraud Office is investigating Auckland property developer Leonard Ross and the outcome will determine whether apartment owners in one of his projects will pursue their own legal claim against him.
The white-collar crime investigator is conducting a part two investigation into Ross, though a spokeswoman declined to provide more detail. A part two investigation means the SFO has reasonable grounds to believe an offence has been committed, and grants the director the ability to compel attendance to interviews.
The probe prompted owners of the Celestion Apartments in Auckland to seek a stay on the removal of Emily Projects Ltd (EPL) from the Register of Companies after the entity's liquidator's Gregory Sherriff and Timothy Downs of Grant Thornton said they didn't want to pursue the allegations or delay winding up the company. Sherriff and Downs received two non-investor claims from unsecured creditors of $671,000, and 53 investors claims totalling $2.9 million, paying out $420,000, or 11.8 cents in the dollar, they said in their final report in October.
The apartment owners say they're creditors of the company and have faced "significant losses" as a result of a rental guarantee at the time of purchase not being met, according to a March 7 judgment by Justice Christian Whata.
Apartment owner Tan Lin filed the proceedings on behalf of her fellow owners, saying if Ross is found to have acted fraudulently or in breach of his duties, "the apartment owners as creditors of the company intend to pursue a derivative action against the director, or alternatively, intend to seek an order requiring the liquidator to pursue these claims," the judgment said.
The investigation was spurred by Blair Brooks, a creditor of Emily Projects, who in an affadavit said "he has reason to believe that the director of EPL fraudulently obtained funding for the development of Celestion Apartments and also used company funds to build his own house at 10 Rata Road, Cheltenham Beach," the judgment says.
"He refers to a number of matters which he suggests show that Mr Ross acted in a fraudulent manner: in particular, that he fabricated the pre-sales and that he must have used his own funds to show relevant deposits in the project."
The judgment said Brooks last heard from the SFO in late 2015, when the agency said it was moving to interview key Emily Projects members having completed its talks with a number of original pre-sales buyers.
Justice Whata granted the apartments owners the stay on Emily Projects' removal from the register, though imposed a six-month deadline to prevent it from dragging on.
"I am satisfied that the applicant has demonstrated a legitimate interest in maintaining the registered status of the EPL, namely to enable the comments of any claim by EPL or a derivative action (if available) based on the outcome of the SFO investigation," the judge said. "I am concerned, however, to avoid leaving EPL and the liquidators in an indefinite limbo while the SFO investigation is being completed - it not being entirely clear what stage the investigation has reached or will reach."
Emily Projects was the entity used to develop Celestion Apartments on the corner of Auckland's Anzac St, one of the unfinished projects planned by the failed Blue Chip group of companies.
Chris Horton of Chris Horton Associates was appointed liquidator in December 2011, resigning in October 2014 when he handed over the administration to the Grant Thornton pair due to the complexity of the liquidation "and the importance of absolute impartiality". During Horton's time as liquidator, he investigated allegations of misconduct by the director before deciding there was no evidence of funds being misappropriated, according to his reports filed with the Companies Office.
Horton also cleared the sale of a $7 million loan book over 18 units to related company Limey Solutions for $3 million, which PwC independently advised as being reasonable. The price was later reduced to $2.7 million when variations removed one of the units from the loan book, and Limey went on to sell it to CBD Mortgages, a unit of Auckland-based property financier CapitalGroup.
Ross's other developments have included the former Blue Chip project Icon Central at St Martin's Lane, and more recently the Merchant Quarter building in New Lynn.
BusinessDesk.co.nz
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