Sky Land Consultants Plc, Re

A land-banking arrangement may be a collective investment scheme even though each participant owns a distinct plot and the contractual documents confer individual rights. The court examines how the arrangements are intended to operate in practice.

The statutory conditions are satisfied where investors lack day-to-day control and the operator manages their land as a whole. Management depends on the nature of the property. For development land, it may comprise seeking planning permission and arranging development or sale. An operator cannot avoid regulation by changing its documents while continuing the same arrangements in substance.

The Secretary of State petitioned under section 124A of the Insolvency Act 1986 to wind up a company which marketed individual plots of agricultural land as investments. The principal allegation was that the company had established and operated an unauthorised collective investment scheme contrary to the Financial Services and Markets Act 2000.

After intervention by the Financial Services Authority, the company changed its contractual documents to state that investors would control their plots and make their own planning and sale arrangements. The central questions were whether the original arrangements fell within section 235 and whether, despite the documentary changes, the company continued in practice to seek planning permission and a purchaser for the land as a whole.

1. A winding-up order would be made. The arrangements promoted and operated by the company were at all material times a collective investment scheme within section 235 of the Financial Services and Markets Act 2000. Its only business was therefore unlawful, and it had deliberately continued that business after being given an opportunity to change it.

2. Section 235 begins with a broad definition and then narrows it through successive requirements. The essential criteria are arrangements within subsection (1), absence of participants' day-to-day control under subsection (2), and either pooling or management of the property as a whole under subsection (3). Because contravention may give rise to criminal liability, the provision should not encompass matters which do not fairly fall within it: Financial Services Authority v Fradley [2006] 2 BCLC 616 (CA) considered.

3. The word “arrangements” is wider than an agreement or contract. In this context the court examines the intended practical operation of the scheme, and the arrangements need not be legally binding. Investors bought separate plots on the shared understanding that the company would seek planning permission and market the site. Those arrangements enabled them, as owners of parts of the relevant property, to obtain profits from its eventual sale.

4. The subsection (2) inquiry concerns factual control, not merely legal rights. The investors exercised no day-to-day control over the land. Planning, development and sale activities remained in the company's hands, while the original owners continued its physical agricultural use.

5. Pooling was unnecessary because section 235(3)(b) was satisfied. The relevant property comprised the investors' plots collectively, even though they formed part of a larger site and each plot could legally be sold separately. Management takes its content from the nature of the property. For this development land, seeking planning permission and pursuing development or sale constituted management of the property as a whole.

6. The documentary changes made after regulatory intervention did not alter the substance of the arrangements. The company continued to represent that it would handle planning and sale for the entire site and acted on that basis. Its proposed further offer of refunds or retention of plots carried no weight. The company was ordered to be wound up.

not stated in the judgment.