Collapsed developer Ralan’s apartment buyers have been presented with an alternative to liquidation: more apartments in separate, unrelated, projects.
Ralan, a high-profile developer of apartments in Sydney and the Gold Coast, was trading insolvent from at least 2014 after the collapse of two of its builders, according to preliminary findings from voluntary administrators Grant Thornton.
The company, led by William O'Dwyer, has been found to owe $238 million to banks and financiers as well as $241 million to hundreds of apartment buyers after undertaking a Ponzi fund raising model.
In an attempt to keep the company afloat, O'Dwyer has now tabled a convoluted compromise, offering apartment buyers and unsecured creditors further apartments in separate unrelated projects, to be handled by a third-party developer, through a deed of company arrangement (DOCA).
Through the arrangement, buyers could deduct the deposits owed from the purchase price of the new units, yet would forfeit any future claims against the stricken developer.
“Mr O’Dwyer has proposed a deed of company arrangement (DOCA) for several companies in the group, however, we believe it is highly speculative and contingent,” Grant Thornton said.
“Given the collapse of the group, a significant amount of creditors may not have the financial resources to enter into a contract for the purchase of a new property which would result in them being worse off than in a liquidation scenario where various claims can be brought against related and third parties.
“Accordingly, we do not believe it is in the best interest of creditors to vote for the deed of company arrangement and we have recommended they instead vote for liquidation.”
Nearly 1,200 apartment buyers, who invested in Ralan's Arncliffe development, which is under construction, and the yet-to-be-built Ruby tower on the Gold Coast, will now be given the opportunity to review the administrators findings at a meeting next week where the future of the group will be determined.
The overwhelming majority of buyers had allowed their deposits—that ranged from the standard 10 per cent up to 20 per cent—to be released to the developer in return for an enticing 15 per cent interest rate on the funds during the construction phase.
Ralan also sold apartments with unusually high 16-year rent guarantees to appeal more to investors.
It is understood many paid full price even before they were built with some apartment buyers alleging they were owed as much as $500,000 on their Sydney and Gold Coast off-the-plan purchases.
“There is no 'new money' being provided by Mr O’Dwyer as part of the two DOCA funds in consideration for the releases he is seeking,” Grant Thornton said.
“There is no upside for creditors to compromise their claims and potential actions that may exist in relation to the insolvent trading, antecedent transaction and breach of director’s duties, by Mr O’Dwyer.
“Creditors via the liquidation will be given an opportunity to further pursue various legal avenues for potential recoveries.”
The NSW state government has indicated it was moving to ensure that off-the-plan apartment deposits won’t be able to be accessed prematurely by property developers.
New legislation would safeguard deposits within the trust funds of solicitors or conveyancers as well as estate agents or the public trustee. The legislation passed parliament late last year, but regulations have been delayed.