Michael Jacobs & Michael Chapman | March 2012 | Commercial disputes & insolvency
The recent High Court decision of Equuscorp Pty Ltd v Haxton reinforces the equitable principle that those seeking equity must come with clean hands. The decision questions the ability of financiers of investment loans to recover where the underlying investments are found to have regulatory issues.
Who does this impact? Financiers and assignees of investment loans.
What action should be taken? Do prior due diligence on underlying investment compliance.
TurkAlert
Lenders tarred with promoter’s brush
Background Rural Finance Pty Ltd (“Rural”) provided loans between 1968 and 1989 for non-farmer investors to purchase interests in blueberry investment schemes in northern NSW. Rural was part of the Johnson Group, which included various companies that promoted, financed and managed the schemes. The schemes ostensibly were for investors to share in profits and capital appreciation from production of blueberries. However, a particular benefit was an immediate tax deduction. Rural provided finance to investors. Contrary to section 170(1) of each state’s then Companies Code, no statement, or prospectus, was registered when investors were offered, or invited to purchase, interests in the schemes. The Johnson Group’s blueberry farming enterprise collapsed in 1991 and receivers and managers were appointed to Rural by Equuscorp Pty Ltd (“Equuscorp”), an arms-length lender to the Johnson Group. In 1997 Equuscorp took assignments of the loans provided by Rural to investors in the schemes.
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