A residential developer that sought to build a £1bn business on the back of permitted development rights and high risk mini-bonds has been shut down after an investigation found the company misled investors.
Magna Group, set up by Chris Madelin and Oliver Mason in 2014, has had seven companies wound up by the High Court.
The founders boasted a £1bn pipeline of development but, despite spending millions in investor money, the schemes were all returned to equity partners or ended up in receivership.
Magna acquired a handful of sites using funds from high-net-worth individuals, using unsecured loan notes. These mini-bonds promised annual returns of 12%, rising to 18% over three years, with a minimum buy-in of £10,000.
An Insolvency Service investigation concluded that the marketing of high-risk mini-bonds was misleading and that the directors continued to take investors’ money even after the companies were made insolvent.
Earlier this year, EG reported that Magna had told investors it had no viable way to repay the £20m in loans. A group of 30 investors joined together to take legal action and one source told EG that most of the investors in the group claimed to have put their life savings into the loan notes. When they tried to contact Magna, telephone calls were unanswered, letters were returned and they discovered the office had been disbanded.
Madelin and Mason are believed to have been the beneficiaries of £2.5m via director loan accounts. Furthermore, the mini-bond vehicles MIX3 and MIXG took more than £2m from investors after the company had already become insolvent at the end of December. According to the Insolvency Service, the companies failed to pay loan note holders, leading to a default event in all loan notes. However, they paid themselves £425,021, with a further £370,471 lent to a non-UK company of which they were shareholders.
The High Court has wound up four unregulated mini-bond vehicles (Magna Investments X Ltd, MIX2 Ltd, MIX3 Ltd and MIXG Ltd). It has also shut down associated companies Magna Asset Management Ltd, Magna Project Management Ltd and MIX Ops Ltd. The companies were all wound up on 10 August and the official receiver appointed a liquidator.
Edna Okhiria, chief investigator at the Insolvency Service, said: “Investors in the MIX companies were systematically given false comfort that their investments were to be “asset-backed” by tangible “bricks and mortar” security when in reality this was not the case and highly misleading.
“Marketing and publicity material circulated to investors presented a false picture of the group’s strong financial health and the companies induced investors to invest over £2m after December 2019 at substantial risk, with the knowledge it had stopped repaying existing investors and therefore there was no reasonable prospects of repaying these sums.”
The Financial Conduct Authority recently banned the mass marketing of mini-bonds to retail investors, following concerns they were being promoted to investors who did not understand the risks and could not afford the potential losses.
Magna has blamed PD homes that banks have refused to mortgage, a poor sales market, contractor fees, Brexit, the pandemic, media reporting and jittery lenders for its failure.
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