Park First, Think Later: FCA issues proceedings against Park First Limited
November 26, 2019
3 min read
What's going on here?
The Financial Conduct Authority (FCA) is suing Park First Ltd for fraudulently misrepresenting an investment scheme which raised £230 million from over 4,500 investors.
What does this mean?
Park First is the parent company of several subsidiaries which own a number of off-site airport car parks in the UK. Since 2015, it has offered a six-year investment scheme to individuals and companies. Prospective investors would buy a parking space for about £20,000, which Park First would rent back for a six-year term. This ensured guaranteed returns of 8% in the first two years, rising to a projected 12% in the final two years. Park First would raise this money by charging airport-goers for using the spaces.
The FCA considered this a “collective investment scheme” (CIS), which is defined widely in s.235 of the Financial Services and Markets Act 2000 (FSMA) as any property fund which investors pool money into and receive income from. Importantly, s.21 FSMA says that a CIS must be authorised by the FCA to be promoted. Since the scheme was not authorised, and Park First advertised it to the public, it had promoted it unlawfully. The FCA also found that Park First had acted fraudulently by making false statements about their investments. Details of car park occupancy levels and income were false, investment valuations were inflated by 25% and annual administration fees of around £800 were not disclosed.
The FCA notified Park First of these breaches in 2016. In response, the company offered to buy back any parking space or rent it back from investors for life. High demand for both options led to four subsidiaries of Park First entering administration in July 2019.
What's the big picture effect?
The FCA is seeking several court orders against Park First, its chief executive and its director. It wants compensation, a declaration that this was an unlawfully operated CIS, and an injunction.
This will impact Park First’s process of restructuring which it announced in July. The company was already trying to secure £33 million for affected investors through a company voluntary arrangement (CVA). This is a restructuring tool used by insolvent companies to avoid dissolution, by allowing a proportion of its debts to be repaid over time. Therefore, operators of unauthorised CISs should be aware that the FCA can, and will, bring proceedings at any stage of a CIS. The FCA is likely to bring court proceedings to protect investors of unauthorised CISs, prevent further harm to prospective investors and as a deterrent for other companies.
Investors are likely to seek legal advice to claim compensation from Park First. Since Park First is not FCA-regulated, investors cannot claim through the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS). However, if investors received information to invest from an FCA-regulated financial advisor, they may be entitled to complain and refer their complaint to the FOS. Should the regulated firm become insolvent, investors can claim under the FSCS for receiving unsuitable advice on investments.
This leaves investors with remedies in contract. Lawyers may argue that investors’ contracts with Park First were rescinded due to fraudulent misrepresentation. Rescission means that the contract was never legally binding, because investors relied on false statements (the false misrepresentations) to enter into it. A successful claim will entitle them to a full refund plus compensation for any loss. To assess the strength of a claim, lawyers will conduct due diligence on the investment contract, checking it for statements on valuations and expected returns. These may be passed on to accountants for auditing, who will evaluate the validity of these figures.
Finally, investors can apply to the administrator of Park First’s four subsidiaries with evidence that they have a “provable debt”. However, investors will be classed as ‘unsecured creditors’, which means they receive the least priority for repayments, and hence may not get a full refund.
This litigation has the potential to send Park First into insolvency and its board members to prison. The FCA’s uncompromising readiness to litigate serves as a warning to companies offering similar unauthorised investment schemes.
Report written by Arun Allen
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