Creditors tangled up in the collapse of Sydney-based property developer Ralan Group are being “prepared for a poor outcome”, with more than $500 million in debt owed across the group.
Appointed administrator Grant Thornton has revealed that more than half of Ralan's debts are unsecured loans to its buyers who bought apartments in Ralan's $2 billion Ruby and Sapphire projects on the Gold Coast and The Orchid in Arncliffe, New South Wales.
At the first creditors meeting, held in Sydney on Friday, administrators briefed over 750 attendees looking to understand what would become of their deposits, many of which were organised via “side agreements”. Ralan chief executive William O'Dwyer was not in attendance.
Grant Thornton said there were close to 1,800 major creditors that the developer had been using unsecured apartment deposits from to pay its expenses. Ralan's secured lenders include Hutchinson, Westpac, non-bank financiers Wingate and Sydney's Balmain Corporation.
Some creditors have alleged they were owed as much as $500,000 in unsecured deposits on their Sydney and Gold Coast off-the-plan purchases.
“It's still very early in the process, however current investigations suggest a massive shortfall of $277 million in the trust account from the deposits released on Ralan developments,” Grant Thornton joint administrator Said Jahani said.
“We are working closely with key stakeholders to identify and preserve value for creditors, however our advice to creditors is to prepare for a poor outcome.”
“We have also notified ASIC (Australian Securities & Investments Commission) of our appointment and our pending investigation.”
It is understood the $277 million in deposits secured by Ralan were used to pay expenses and interest on unsecured loans. Grant Thornton will also investigate whether or not the funds were used for personal and lifestyle expenses.
$59.4 million shortfall from the trust on the 477-unit Ruby 2 project on the Gold Coast
$60 million shortfall from the trust on the proposed 489-unit Ruby 3 project.
$39.5 million shortfall from the trust on the yet-to-be-built 406-unit Ruby 4 tower.
$70 million shortfall from the trust on the proposed 673-unit Sapphire tower on the Gold Coast
$3.6 million shortfall from the trust on the recently completed 243-unit Ruby 1 tower.
Creditors said Ralan sold some apartments with unusually high 16-year rent guarantees to appeal more to investors.
The majority had signed onto “side agreements” with the developer, which effectively gave the company access to the funds as unsecured loans.
“We have received some questions around the legality of the side agreements regarding purchaser’s release of deposits on pre sale contracts. Ralan has been offering these side agreements for a number of years,” Jahani said.
“Our investigations will look at the action of the director, William O’Dwyer, and whether he breached any of his duties.”
Grant Thornton said it would seek to extend its voluntary administration of Ralan due to the complexity of the failure.
Ralan and more than 50 of its subsidiaries held a development pipeline of over 3,000 residential units in the construction or pre-sale stage.
Its flagship project, the $1.4 billion Ruby Collection at Surfers Paradise, comprising 1,600 apartments spread across four towers, has only seen the first tower completed, with construction yet to commence on the three other towers.
It is understood some buyers paid deposits between $70,000 and upwards of $100,000 for apartments in towers two and three.
Ralan's 318-apartment Arncliffe development The Orchid has been paused and local builder Richard Crookes Construction let go due to a lack of funding.
“In regards to the one development under construction in Arncliffe, the project was going well, on time and on budget,” Jahani said.
“We have been talking to various parties to fund the completion of the project, and we are confident Arncliffe will be finished – but likely delayed.”
Administrators said they were confident of securing the funds needed to complete the project.