Over the last decade many hundreds of UK pension savers have been persuaded to transfer safe, UK-regulated pension funds into unregulated, overseas investments which are now either worthless or extremely difficult to access. In this article we focus on The Resort Group investments in the Cape Verde islands.
The Resort Group PLC, a Gibralter registered company, offered investment opportunities in “stunning new developments”, including Llana Beach Hotel and Dunas Beach Resort, through a network of UK introducers and Independent Financial Advisers. The marketing material referred to “sustainable investment returns, including attractive rental yield and the opportunity for substantial capital growth”. Recommended by an IFA or convincing salesman, the proposals sounded attractive to pension savers but in many cases were wholly unsuitable pension investments, for the following reasons:
Legal title complexities
Investments in the Dunas Beach and Llana Beach resorts are either “fractional” holdings or “direct” holdings. With the fractional holdings, investors have no direct ownership of any land in Cape Verde. Instead, their pension investment purchased a membership of a company limited by guarantee. These companies are UK registered and have been declared “dormant” and with no assets since their incorporation. The companies, in turn, entered promissory contracts to purchase a suite or unit at the Cape Verde resorts. A promissory contract is only the first stage of the land purchase system in Cape Verde – before legal title is transferred to a purchaser, completion of the purchase has to take place by way of Public Deed. For most, if not all, fractional investments, the current situation is that completion has not taken place. The “asset” held in the pensions invested in fractional holdings, therefore, is a membership of a dormant company which has declared nil value assets since its incorporation, and does not have a completed legal title to the unit it was intended to own.
Some investors (usually higher value investments) potentially do have a direct ownership of property in the resorts (either full or half of a unit) but, again, many of the titles to these properties have never been completed by way of a Public Deed. Despite paying the full purchase price of the property at the outset, legal title to the property has never passed to these investors’ pensions. The Resort Group cites delay at Cape Verde notary offices for the delay in completions, but local sources (including Cape Verde lawyers) confirm no problems in obtaining appointments at notary offices and confirm that the true problem is the existence of charges (mortgages) on the developer’s land at the resorts. Not only has no title passed, therefore, because the title remains with the original developer, there is a risk that it remains subject to a legal charge (mortgage), held as security for the developer’s debts.
We have a number of clients who have attempted to sell their Cape Verde investments either through The Resort Group or privately through Cape Verde agents but without any success. Any investment which does not have good title (as explained above) will run into problems on any re-sale. Even putting aside these legal title problems, most investors had no idea that to access their pension capital when needed they would need to organize personally the sale of an overseas property, involving the instruction of lawyers and property agents in Cape Verde and potential tax implications.
From the outset, an investment in Cape Verde property carried risks which ought to have been clear to any reasonable financial services professional, rendering these investments unsuitable for all but the most sophisticated and experienced investors, with capacity to lose the investment in full. Some of the relevant risk factors (aside from the points noted above) included that these were unregulated products meaning no protection from the UK financial services industry if the investments failed, they were overseas (bringing in currency conversion, legal and taxation risks), they were in a very specialist sector, wholly dependent on the success or failure of the proposed resorts as a holiday destination. In most cases, the entire value of a pension transfer was invested, giving no diversification – a basic principle of sensible investing – Don’t put all your eggs in one basket!
The current position is that investors in The Resort Group assets in Cape Verde hold assets within their pensions with uncertain legal titles, of uncertain value (but highly likely to be worth far less than they paid), and face a complex web of options to try to salvage their pension arrangements.
The situation is legally and factually complex and each investor, in our view, deserves bespoke attention. That is Claire Collinson Legal’s ethos in dealing with claims and complaints of this nature and what sets us apart. In deciding what is the best approach for each of our client we do not adopt a standard approach but consider all angles, as explained below:
There can be many different companies / firms involved in the process of a pension transfer and we assess each case to identify which one or ones are most likely to be held responsible for our client’s losses. This depends entirely on each person’s factual circumstances. If an IFA has advised on the transfer, a complaint or claim against an IFA may be appropriate. We will assess whether it would be better to pursue a litigated claim (through the Courts) or make a regulatory complaint to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS).
We are able to confirm that we have secured compensation for our clients from the FSCS based on valuation reports sourced through our contacts in the Cape Verde property market which reflect a very significant de-valuation of Cape Verde investments against the values being provided by SIPP Providers and / or The Resort Group, but instead reflect a realistic re-sale value.
Another issue we will consider is whether a SIPP Provider can be held responsible for losses for failing to do proper due diligence on either the asset held within the SIPP or the introducing firm (often an unregulated business which cold-called people offering a pension review). For this type of claim, a careful review of the legal title structure held in each case and what the SIPP Provider has done in terms of checking out the legal title and valuing the investment is important and will be part of our advice.
For particularly high value claims or situations where investment are held within pension wrappers other than SIPP’s we may need to consider different options including looking at the manner in which pension monies were released from a previous scheme (were sufficient warnings given in line with Pension Regulator’s Guidance?) and / or introducers or valuers.
In short, we approach each claim with the detail and respect such a complex situation deserves: we work in a bespoke manner to analyse thoroughly which is the best route for each client to recover appropriate compensation.
There are a number of potentially relevant time limits associated with pension claims which, if missed, can prevent recovery of compensation. This includes Limitation Periods for litigation (dealt with under the Limitation Act 1980) and FOS and FSCS time limits set out in their jurisdiction. We will assess relevant time limits carefully and put in place protective measures where possible.
Hand in hand with our bespoke approach to cases we offer choice to our clients on funding options. For cases of this nature we can work on either:
• A traditional hourly rate basis. We will provide an estimate of costs at the outset and not exceed that. This option often works out to be the cheapest option but requires payment as the work is done whether or not the case succeeds or not.
• A fixed fee. For those who want certainty of cost we can work on a fixed fee basis with payment by instalments.
• No-win No-fee. Many firms will work on the basis that they will take a percentage of the compensation recovered if a case is successful. This can result in a very significant depletion of pension compensation and we prefer a slightly different approach. We can offer no-win no-fee arrangements (so no fee where there is no compensation), but where compensation is recovered our charge is based on the time spent on your case, plus an uplift to reflect the risk to our firm of not being paid at all. We will agree a cap on the total amount to be charged as a percentage of your recovery. The meaning of this structure is that our fee will reflect the amount of work needed to win your compensation, whilst giving comfort on the maximum amount payable, which we think is a fair way of working and maximises your recovery.
Finally, there are a number of ancillary issues to think about in the context of a pension complaint. For example, if compensation is won, is the compensation taxable? Should the money be-reinvested in a pension and if so, how? We cannot give advice on tax or financial investment matters but we will ensure that you are aware of these issues and that you are given appropriate information about where to source advice on these important points to make the best decisions for yourself in planning for the future.
For further information please contact Claire Collinson on firstname.lastname@example.org or 01661 844185