[+] Not Too Big To Fail: Inside the Ralan Group Collapse

The news that Ralan managing director William O’Dwyer pleaded guilty to fraud marks the beginning of the end of one of the biggest legal cases in recent Australian property history. Ralan’s ‘Ponzi-style’ funding tactics left carnage in their wake. When administrators from Grant Thornton were called in during July 2019, $561 million was owed to creditors—and they found that the group had been trading insolvent since at least 2014 . They blamed its “unsustainable”, “partial-Ponzi” business model, construction company collapses, manipulated financial records, and O’Dwyer himself—who siphoned off group funds to buy bitcoin and personal properties— for the demise of a company once considered an industry leader . As part of a special investigation The Urban Developer spoke with senior lecturer in the University of Queensland School of Law Vicky Comino who says it is an example of how lack of transparency in funding practices can lead to major failures. “These sorts of collapses, from the insolvencies of building companies to property finance schemes that we have seen in the past, such as with the high-profile Westpoint scheme in 2006, are very common and I suspect this sort of behaviour is much more common than we’d like to think,” she says. But questions remain: how did a company as big as Ralan trade insolvent for so long, and how does the property industry learn from major failures such as Ralan Group? O’Dwyer and the Ralan Group Examining the history of the Ralan Group reveals a picture of a tightly held dictatorship with financial practices that increasingly veered into fraud. Ralan was launched by William O’Dwyer in 1998 as a project marketing company and expanded into development in 2008. O’Dwyer’s early history is murky, although media reports record him as being born in the United Kingdom. An archived Ralan Group webpage said he had “been involved in the marketing and development of property since 1993”. From 2008 to 2012, the majority of the group’s 19 developments were profitable, with an average profit of $827,000 a project. At the date of administration, the group had completed 30 developments, with a strategy of buying DA-approved land and undertaking off-the-plan sales in-house. ▲ O'Dwyer was either the sole director or one of a small number of directors, including brother Bryan O’Dwyer, of all 50 Ralan Group companies. It wasn’t until 2013 that the group incurred its first significant loss—$22.3 million due to delays for a Burwood development as a result of planning consent issues, which ended legal action between the group and the Burwood council. Funding setup Critically, from as early as 2008, purchasers were offered the opportunity to release their deposit to the group in exchange for capitalised interest of 15 to 20 per cent a year, to be deducted from the amount owed at settlement. In one example, of the $3.6 million received in deposits in the pre-sale of Ralan’s Gold Coast apartments, $1.9 million was used to fund the settlement of apartments in a completed development in NSW. Initially, only a small number of purchasers released their deposit to the group. ▲ In the three years before entering administration, more than 500 of the rescinded contracts were identified relating to projects such as Ruby Towers. However, in later years, more than 90 per cent of purchasers would release their deposit. In some instances, purchasers would only enter into a sale contract as an “investment” for the interest and rescind their contract before completion at no penalty. Assistant professor at Bond University and member of the Centre for Comparative Construction Research Matthew Moorhead confirms this is not standard practice. ‘The most common practice is that a developer will take a 5 to 10 per cent deposit for off-the-plan sales,” he says. “In places such as Dubai and Malaysia, buyers’ deposits go to the developer and it forms the developer’s equity, becoming a form of managed investment scheme. “Here, it’s not widespread and generally it is frowned upon.” Comino says it may have attracted buyers with promises of high returns. “The unit holders, those people who paid their deposits, were promised high returns of 15 to 20 per cent. That should have rung alarm bells,” she says. “They are victims though, and people like O’Dwyer who reportedly ‘personally guaranteed’ these investments are often charismatic—they know all the right things to say, and people get sucked in by them. “The developer seemingly ran an unlicensed debenture scheme, so it was illegal, but the problem was, how would ASIC know unless someone reported it?” ▲ Ralan made promises the “investments” would deliver returns of up to 20 per cent capitalised interest. Of course, there is a difference between off-the-plan buyers and experienced financiers. But both Wingate and PwC told administrators back in 2019 that they had no idea this was a funding model practised by Ralan; they were sent favourable financial statements and documentation showing that purchasers’ deposits were being held in full in a trust account, which proved not to be the case. “The banks and financiers didn’t suspect anything was going on in this case. But sometimes, even when they do, the attitude especially with large companies is that it’s best to support them through the hard times in the hopes that fortunes will be reversed instead of pulling the plug,” Comino says. Construction trouble With already questionable funding practices, Ralan’s decline was accelerated with the collapse of its main builder, Steve Nolan Constructions, in 2014. Ralan Group funded the unpaid subcontractor payments in order to resume construction, taking on another builder, SX Projects, which entered into voluntary administration six months later. Just one of Ralan’s four planned Ruby Towers buildings was completed by the time of administration while its Budds Beach development, Sapphire, had not begun construction, although an estimated 90 per cent of its apartments were presold. ▲ The collapses of two construction companies cost the Ralan Group in excess of $60 million. By this point, Ralan was struggling to secure construction funding for Ruby and Sapphire after those builder collapses and brought in PwC in its attempts to secure financing. By July, 2019, all funding options were exhausted and cash reserves depleted, and the group appointed voluntary administrators. However, Grant Thornton’s analysis showed that even if the group had secured funding for its Ruby Towers and Sapphire developments, it would have incurred an overall loss of more than $140 million, and the group would not have been in a position to continue. Nightmare for creditors At the time of administration, Wingate Group was owed $178.9 million, St George and Westpac $23.9 million, Balmain $28.5 million and National Australia Bank was owed $7 million. Employees, 301 of them, were owed $1.46 million, but total unsecured claims—relating to purchasers who released their deposits to the group—totalled $323 million. Plans were put forward by O’Dwyer himself that would offer creditors a discount on future apartments to be built by a third party—that turned out to be Jean Nassif’s Toplace Developments, which itself has faced legal action over poor quality builds. However, these were dismissed by administrators, who labelled the options “highly contingent and likely to fail”, given they also included a clause that would prevent creditors bringing any claims against O’Dwyer or Ralan Group. ▲ In attempts to claw back some of the money from O’Dwyer himself, administrators issued a demand for $19 million. O’Dwyer had made gross withdrawals from company accounts to purchase $5.5 million in personal property at Bondi, spent $1.6 million on bitcoin, $2.7 million on American Express cards and $3.2 million on personal withdrawals. By the time of the creditor’s report in late 2019, the majority of the group’s assets had been or were in the process of being sold, but around 1500 off-the-plan buyers were left with nothing. “Currently, zero has been paid out to unsecured creditors,” Grant Thornton told The Urban Developer. “Payment to Wingate is still in progress, as Wingate have their own receivers, so we are unsure as to the amount repaid to them, but they are not fully repaid as yet.” The aftermath The failure of Ralan Group highlights major issues around the lack of transparency in the way some developments are financed, and the danger in having such major development companies in the hands of one person. However, the aftermath paved the way for other players to move in, including the acquisition of the Sapphire site on the Gold Coast by Tim Gurner in 2021 after it was put up for sale by the administrators. Alongside Wingate, Gurner plans a $1.25-billion mixed-use resort precinct on the 13,000sq m site at Budds Beach as a joint-venture with Wingate . Tim Gurner says that the resort development, La Pelago, is now sold out, totalling $350 million across the first tower with planning approval in place. “We are now working exclusively with a tier one contractor to finalise a price so we can start construction,” Gurner told The Urban Developer. “Labour in Queensland is still in short supply due to the unprecedented pipeline of government infrastructure projects either under way or planned to commence. “We are hopeful that the state government can work with the industry to address this critical labour supply issue and create a pathway for more private development projects to access the limited labour resources that are in play, so we can assist in delivering much-needed housing ahead of this looming housing shortage crisis.” ▲ Stage one of Gurner’s La Pelago on the Gold Coast has sold out. William O’Dwyer declared bankruptcy in 2021, protecting him from having to further contribute to creditor repayments. “Claims could have been made against him but the fact he is now bankrupt means it’s unlikely he will be liable for anything,” says Comino. “A claim investigation would cost the trustee in bankruptcy potentially tens of thousands of dollars.” While O’Dwyer’s guilty plea last month paves the way for a sentencing of up to 60 years in prison, it is too little, too late for many off-the-plan buyers, and many will wonder why O’Dwyer’s prosecution took nearly four years. “ASIC will get a complaint, probably in this case from the administrators, setting out any breaches of director duties, like not trading whilst insolvent, but it’s really difficult to prove this, and they did not keep proper books,” says Comino. “ASIC receives a lot of complaints from creditors, administrators and the public but it is very under-resourced with a really wide mandate. “There is also the concept of being ‘too big to fail’—the idea that if these companies go down, a lot of people can suffer, and that means that it’s in the interests of many to keep them afloat at nearly all costs. “But this is a really inadequate area of the law and [some] people know how far they can go and push the envelope.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. 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[+] Not Too Big To Fail: Inside the Ralan Group Collapse

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