News of yet another property collapse has hit the headlines.
The demise of Australian Capital Reserve (ACR), the prolific late night TV advertiser, has affected an estimated 7000 investors through its offer of aggressive rates of return. Aimed mainly at elderly investors, it invested in a series of unsecured loan notes.
It is the third property investment loan investment to fail in just over a year. Westpoint was wound up by the Federal Court in February 2006 and Fincorp collapsed in March 2007.
Like Fincorp, the investments were aimed directly at investors so there should not be any direct fallout to financial planners, yet it will be interesting to see whether the failed property group does affect planners.
It will certainly be something clients will want to talk about, even if it's just to be assured they are not going to face anything similar.
There is also concern for planners that professional indemnity cover will rise from these collapses because direct property investment schemes are getting riskier.
Once again, like Fincorp, ASIC had issued an interim stop order on ACR's prospectus over a number of concerns relating to disclosure in that project. A final stop order was issued in April.
In relation to Fincorp, ASIC had made six stop orders over misleading claims in its prospectuses relating to the Fincorp offers being low-risk investments which would allow people to "sleep soundly at night".
Litigation specialist IMF's consumer advocate, Denise Brailey, says the ACR scandal is just one more in a series of corporate collapses that includes Westpoint and Fincorp.
She says she blames ASIC for snoozing on the job, as she first alerted the regulator to problems at ACR in early 2005 before it finally took action in March 2007.
Will this cycle never end?
