‘Hopelessly conflicted’: Federal Court details UGC advice model

The Federal Court made orders for the Global Capital Property Fund (GCPF) to be wound up on 3 October as its affairs were in an “unsatisfactory state”. Among reasons given for the wind-up were a justifiable lack of confidence in the conduct and management of GCPF’s affairs and a risk to the public interest that warrants protection.

The Australian Securities and Investments Commission (ASIC) applied for the winding-up of GCPF as it said it holds numerous concerns about the management of GCPF’s business.

It had previously obtained interim orders from the Federal Court freezing the assets of GCPF and related financial advice licensee United Global Capital Pty Ltd (UGC).

The court subsequently discharged the freezing orders against UGC following the appointment of a liquidator to that company and on 1 October 2024, dismissed the proceeding against UGC by consent.

GCPF is an unlisted public company, which was incorporated on 15 August 2019, with 538 shareholders from whom it raised around $85 million in share capital. It was run by directors Joel Hewish, Brett Dickinson and Chris Pappas, although Hewish has since resigned as he received a banning order from ASIC. Hewish was also the sole director of UGC, which had its Australian Financial Services Licence cancelled on 31 May 2024.

In the judgment released on Monday, Justice Neskovcin detailed the extent of the complications afflicting the firm and its “UGC Advice Model”.

This involved UGC or its corporate authorised representatives (CARs) making cold calls to consumers for a “superannuation health check” and encouraging them to rollover their superannuation into an SMSF and invest their retirement savings in related party products.

“UGC ran promotional campaigns offering prospective clients the opportunity to win an iPhone or similar prize. UGC’s representatives used the contact details provided to contact the prospective clients to offer a ‘free general superannuation health check’. The prospective clients were asked certain questions to ascertain if they were suitable to be referred to UGC,” the judgment said.

“Under the UGC Advice Model, the CARs called prospective clients to ascertain their superannuation balance, the fund it was held in, whether they were working and their age. Next, a ‘super specialist’ gave a presentation to prospective clients, the effect of which was to recommend that the prospective clients transfer their retirement savings from their regular superannuation accounts into a self-managed superannuation fund and invest in related entities, such as GCPF, through the SMSF.”

GCPF then used funds raised from shareholders to indirectly invest in 15 property development projects, most have which have faced delays resulting in limited return for shareholders.

“The ability of each of the special purpose vehicles (SPVs) to repay GCPF’s investments is contingent on the relevant projects turning a profit. Most of the projects have been delayed,” Justice Neskovcin said.

“Only one of the projects has been completed and 14 are ongoing [or less, if one discounts the projects which GCPF has decided are not viable]. Some of the projects are likely to realise a loss to GCPF and, therefore, result in nil return to shareholders.”

In mid-2022, ASIC issued three stop orders to GCPF, which prevent GCPF from raising further funds from retail investors.

There is a risk to the public interest that warrants protection, the court stated, as the investments in GCPF are highly speculative and likely to be loss-making.

“The profitability of the projects in which GCPF invested will determine the return to shareholders, who have not yet received any return on their investments and whose capital is locked up in GCPF. Decisions will need to be made in relation to further funding for some of the projects and in relation to the future of the projects that are no longer viable,” the judgment said.

“ASIC submitted, and I accept, that the directors of GCPF are hopelessly conflicted. Moreover, there is a risk of ongoing dissipation of funds to related entities, which may adversely affect the profitability of the projects and ongoing expenses of GCPF, to the detriment of shareholders.”

Ross Blakeley and Kelly-Anne Trenfield of FTI Consulting have been appointed as joint and several liquidators of GCPF.

GCPF must pay ASIC’s costs for the winding-up application and associated costs.