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Landbanking - from Insolvency Service

19 October 2011 00:01

Insolvency Service

Unscrupulous landbanking companies on increase, The Insolvency Service warns potential investors - losses to investors since 2007 exceed £30million

The Insolvency Service is warning the public to be alert to the unscrupulous practice of landbanking as figures indicate that these scams are on the increase. Since 2007 Company Investigations, part of The Insolvency Service, has closed down 49 landbanking companies in England and Wales that have collectively caused the public to lose over £30 million. Since 2009, 39 companies have been wound up that caused losses of £13.4million.

Landbanking involves a plot of land - often green or brown belt - being bought by "developers" and then being sub-divided into a number of smaller plots which are then marketed, often under the false pretext that planning permission will be granted for development.

The Insolvency Service has seen a 33 per cent increase in the number of complaints it has received (2009-2011) against companies involved in these scams and a 100 per cent increase over two years in the number of complaints about landbanking scams accepted for investigation. To date, nine directors of landbanking companies have been disqualified by The Insolvency Service for a total of 86 years. It is estimated that total losses from all landbanking scams exceed £200million nationwide.

Landbanking scams first emerged in the UK several years ago, but in the last three years, The Insolvency Service has witnessed an increasing amount of activity in this area and an increase in the number of complaints it has accepted for investigation.

* 7 cases accepted for investigation in 2009;
• 11 cases in 2010;
• 16 cases to date in 2011.

Analysis of a sample of 35 landbanking 'victims' from four scams closed down by The Insolvency Service's actions (from June 2009 to the present), shows the typical profile of a victim to be - 67% aged over 50 years-old, with nearly half (44%) being over 60 years-old. The oldest investor was 85 years-old. More males appear to have typically fallen victim to landbanking scams, with this sample showing 60% as male.

Based on a sample of five cases (a 'case' being a complaint that has been accepted for investigation) involving six companies and 156 investors, the average amount invested and lost by the 'victim' of a landbanking scam is around £23,000. The amounts lost range from the smallest at £5,000 to the largest at £300,000.

Landbanking scams focus on cold calling, 'hard sell' techniques, with salesmen offering plots of land to investors who are under the impression that they will be able to develop the land at some point in the near future in order to make a quick and substantial financial return. However, the land is usually sold to the investor without the necessary planning permission and in some instances it is green belt land, or otherwise protected from development by law. In the simplest terms, it is never likely to get planning permission.

Robert Burns, Head of Investigations at The Insolvency Service, said:

"It's clear that landbanking scams are designed to target the more vulnerable investor, many of them trusting pensioners who are eager to see a greater return on their savings or pension lump sum than they could ever expect from traditional savings and investments. Tragically this often leads them to rashly invest in what seems to be, on the face of it, safe 'get-rich-quick' schemes."

"We need to alert people to the warning signs and the fact that if a scheme seems 'too good to be true', that's usually because it is.

"The public needs to be aware that land sold in these schemes is nearly always sold without planning permission and promises that planning is likely or in place, is a tell-tale warning signal. A check with the Local Authority planning office should provide a quick answer on the prospects of planning permission. Many potential buyers, including those now being targeted from overseas, might not be aware of this. Land Registry also includes some helpful advice on its website."

Mike Westcott-Rudd, Land Registry, Head of Corporate Legal Services, said:

"We know that landbanking companies have sometimes used forged letters or documents carrying a Land Registry stamp as an 'official guarantee' that either their plot of land already has, or will, gain planning permission.

"Land Registry is so far unaware of any landbanking schemes where planning permission has subsequently been granted. It is typical for plots of land sold in landbanking schemes never to be eligible for planning permission, for example, because the land is situated in the green belt. Those looking to invest should remember that Land Registry is not involved in the planning process at all.

"Land Registry is working with The Insolvency Service, the FSA and the Police in a joint effort to raise public awareness and combat landbanking scams."

Jonathan Phelan, the FSA's Head of Unauthorised Business, said:

"We've seen plots sold on a site of special scientific interest, one on a 45-degree slope, and another without any access to it. None of them stood a chance of getting planning permission and therefore none of them stood a chance of realising the 'hope value' that was promised by the company that sold the land.

"Most of the money placed with these companies disappears and to make matters worse, as the firms are not authorised by the FSA, such investments are not covered by the Financial Services Compensation Scheme. As land banks often snare new investors by cold calling them, the lesson remains: if you are called out of the blue with the offer of land that is 'guaranteed to rocket in price' - be very suspicious indeed.

"This problem calls for a coordinated response and together we are tackling the threat posed by land banks. Working alongside the FSA, Land Registry and the Police, the Insolvency Service has been an active partner in combating land banks by closing them down and preventing more people from becoming victims."

Notes to Editors

* For more information please speak to The Insolvency Service press office:
Jemima Broadbridge, Press Officer, on: 020 7637 6422
jemimabroadbridge@insolvency.gsi.gov.uk or

Ade Daramy, Press Officer on 020 7596 6187
ade.daramy@insolvency.gsi.gov.uk


* The Insolvency Service has the power to investigate companies in certain circumstances, which may lead to the company being wound up. It cannot seek the recovery of funds on an individual basis nor can it provide advice on investment decisions. Potential investors are strongly advised to seek their own independent advice.

You can call the Investigations Hotline on 0845 601 3546 to report misconduct by a disqualified director or an undischarged bankrupt illegally acting in the management of a limited company, or to complain about a company or the conduct of a director of a company that is still trading.

Alternatively you could chose to complain online, by post, or by email.
Help us to protect the public and ensure markets work to the benefit of business, investors, employees and customers.

* A landbanking company can be a UK registered company, but it can also be registered overseas and providing its business has been conducted in Great Britain /Northern Ireland, an investigation by The Insolvency Service is still possible. Following an enquiry, the Secretary of State can decide what action should be taken, which may include seeking to wind up the company in the public interest

* The Insolvency Service has powers to investigate companies under the Companies Act. It also administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice. Further information about the work of The Insolvency Service is available from www.bis.gov.uk/insolvency

* Land Registry has published a useful public information guide warning against land banking investment schemes: http://www1.landregistry.gov.uk/info/noticeboard/land-registry-warning-about-land-banking-schemes For further information about Land Registry visit http://www1.landregistry.gov.uk/

Contacts

Land Registry
Marion Shelley, Press and PR Manager, on 0300 0067543
marion.shelley@landregistry.gsi.gov.uk

Financial Service Authority (FSA)
Toby Parker, Press officer, on 020 7066 3270
toby.parker@fsa.gov.uk

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