The Supreme Court considered whether the activities carried out by Asset Land were collective investment schemes ("CIS") under section 235 Financial Services and Markets Act 2000 ("FSMA"). If they were, then the company would fall foul of section 19 FSMA, which prohibits anyone carrying on a regulated activity unless authorised or exempt (the company being neither).
The company purchased land which they divided and sold to investors, promising significant profits when the land was granted planning permission and sold on to a developer. These arrangements are often referred to as 'land banking' schemes. The FSA (as it was then) brought proceedings against the company and the individuals involved, arguing that it operated an illegal CIS. Asset Land responded that the investors were the legal owners of the land so the transaction was not a CIS requiring authorisation.
The Supreme Court held that Asset Land was the central operator of the scheme; the individual investors did not have control over their investments, despite being the legal owners of the individual plots. Referring to section 235 FSMA, the Supreme Court found that the words to "have control" are not necessarily limited to the legal control of the investment; one should look at "the reality" of how the arrangements are to be operated and what was intended from the outset. The judge correctly found that the management of the property as a whole comprised obtaining planning permission and securing a sale to a developer; this being within the company's remit and not the investors' giving the company effective control.
Asset Land therefore operated a CIS that required approval and they are required to pay GBP 21m back to investors. However, a recent FCA press release indicates that the assets subject to freezing injunctions will be insufficient to cover anything but a very small proportion of that amount.
The decision brings some clarity to the question of what amounts to a CIS and what will be taken into account by the court.
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