Funding Circle call a halt to property loans - what will this mean for Verto Homes?

As we have been reporting, Funding Circle have been under the cosh over loans for the Verto Homes development at Towan Heights, Newquay.

Word on the FC forum is that they have now put a stop to any new loans to any future property developers. The Towan Heights development, featured prominently in the recent Crowdcube Verto Homes funding pitch, still has overdue loans outstanding. A fact that was never mentioned on the Verto Homes Crowdcube pitch.

One point which was hammered home in the pitch, was that Verto Homes were FC's largest property client. Well looks like they may have to find a new source from now on. 

Verto Homes' Newquay development update on Funding Circle loans

The Funding Circle saga over loans not repaid by a Newquay development that was recently promoted by Verto Homes on their successful Crowdcube pitch, rattles on.

Despite many promises that the funding was just over the hill, the hill has continuously and mysteriously moved just out of reach. Funding Circle have been unwilling or unable to do a thing about it. The repayments were due in May. Almost £500k is still outstanding. According to FC, all 14 units in this development had been sold but that now appears to have been optimistic. At least 2 and possibly 4 have hit snags; the nature of which has been a closely guarded secret. 

Meanwhile, as this situation developed on FC, Verto were raising equity funding on Crowdcube. The Crowdcube pitch made no mention of these late repayments  - until we mentioned them. Verto claimed the loans were nothing to do with them. The development at Towan Heights was however the the main featured picture in their Crowdcube pitch. They had used an alternative vehicle to obtain the cash, which, once you lifted the covers, certainly had one leg wrapped around Verto Home's midriff.

It is no more or less than we have come to expect with Crowdcube. Minimal information, maximum smoke and mirrors equals commission. 

A Verto Homes development has defaulted yet again on its overdue Funding Circle loans - you were warned.

Funding Circle loans to develop Towan Heights in Newquay - a development featured in the recent Crowdcube £1.6m equity raise by Verto Homes, are looking decidedly dodgy

Yet another ultimatum deadline has passed and still the loans are unpaid. As we have reported before here, investors who loaned to this development are up in arms at the way this company has stretched the truth about when payment would be made. The stretching continues.

Whilst the loans were not taken out by Verto Homes directly, Towan Heights LLP is the borrower and it was set up by the same two directors as Verto Homes and has them as members. The Towan Heights development was the main image used to sell the Verto Homes equity on the Crowdcube pitch. Verto Homes claimed in this Crowdcube pitch that they were Funding Circle's main client. 

Join the dots. 

Also, as we have said here before, we are simply amazed that Crowdcube did not think it necessary to flag up this connection and the late repayment - which was due back in May, so before the Verto Homes Crowdcube pitch went public. 

If we had not mentioned it here and pushed for it to be brought to the Crowdcube forum - no one would be any the wiser. When asked about it on the Crowdcube pitch, the VH directors brushed it aside as irrelevant - not their loan they said. Really?

There is at least one other Verto Homes' development which has FC loans and the talk amongst those who are owed money via these loans, is of legal action. It also seems highly likely, given the bad PR this has created, that VH have seen the end of their FC relationship.  Now how can that not be entirely relevant for people investing in VH?

Crowdcube investors have a few more days to decide if they really want to give their money to Verto Homes - so we hope to god they read this beforehand. Fine if you then are happy but you should really have this information in front of you.  

Are we heading for an EIS disaster?

A very recent Crowdcube raise by Verto Homes illustrates what maybe a hidden problem with EIS.

Verto Homes successfully raised £1.6m on Crowdcube this week. They had no advanced assurance from HMRC on EIS eligibility. However they told investors that they expected to be eligible.

In the course of the pitch, the question of EIS came up. In reply to questions, the founders of VH stated that they had taken advice from the Mill Consultancy's Jerry Davision and that he had informed them that they would be EIS eligible. Jerry worked at Crowdcube previously.

One of the proscribed activities for EIS is property development, which is defined as being involved or having been involved in a piece of land that is then developed for housing or commercial use. Its a grey area as construction companies are eligible providing they are not involved and have never been involved in the purchase and sale of the land they are building on.

One other proscription is that the company must not be providing services to another company that is offering a proscribed service if both companies are controlled by the same person/people.

HMRC retain the absolute right to enforce their own judgements in these matters retrospectively.

In the case of Verto Homes, we dont know yet what HMRC have decided. Verto Homes have distanced themselves from their recent developments - Towan Heights for example. Towan Heights LLP are the developers. But if you dig a little, there seems very little difference between the two. Towan Heights LLP was set up in December 2012 as Verto Group Developments Towan Heights LLP. The sole members at this time were the sole directors and founders of Verto Homes. Only in 2015 did the name change and other members join. Also at this time, the two founders terminated their membership to be replaced by their Verto Homes company, as a designated member. Then in May 2016 Verto Homes resigned as a member to be replaced by the the two founders again. So the development company, Towan Heights was set up by the same people as Verto Homes. Verto Homes and Verto Construction (also controlled by the same two) use their services exclusively to develop land that is owned by Towan Heights and other LLPs or companies that are also controlled (at least in part) by the same two people. 

Another Verto Homes development, according to their website, is Hilgrove Mews. Hilgrove Mews Ltd was incorporated in 2015 and its sole directors are the same two as for Verto Homes and the founders of Towan Heights LLP. 

That looks like a pretty close relationship. Of course the application to HMRC prepared by Verto Homes' expert, may not have filled out all this detail. The bottom line is even if HMRC now grant advanced assurance, they can at any stage change this is if it becomes clear to them that the original application was incorrect. The only people who will suffer from any change will be those who have already utilised their EIS relief as HMRC claim it back with interest. 

You might well ask what the equity crowdfunding platforms do to help here. Well in the case of Crowdcube, not much. We think that in cases that are clearly on the line, advanced assurance should be a minimum before any claim by the pitch to EIS relief can be allowed. But we know this wont happen as it would hinder Crowdcube's deal flow. 

One final point on this. If during the first three years of trading (post investment) for whatever reason, the company changes its operations and these changes take them into a proscribed activity, then EIS relief will be voided and any taken will have to be returned with interest. As we have seen with the recent Wool and the Gang 'exit', Crowdcube investors and it appears Crowdcube,  have no control over what the company chooses to do. So this is yet another potential time bomb. 

It might all end up in a bit of a mess. 

Smoke and Mirrors at Funding Circle should ring alarm bells for deal on Crowdcube

The Towan Heigths development in Newquay, which was at least part owned by Verto Homes until May 2016, has received a lot of flack from investors on Funding Circle.

The various loans were due for repayment several months ago and Funding Circle have been working very hard to bat away questions from increasingly irritated.investors. These investors were told all 14 units had been sold, but a post just yesterday states that only 9 have completed the 'legal stage'. A promise of a repayment of almost £1m yesterday seems to have come and gone without any money changing hands. 

Meanwhile over on Crowdcube, Verto Homes, who were partners in Towan Heights, have raised £1.5m via equity sales - the amount almost to the letter that Towan Heights owes FC investors. None of this information is mentioned in the Crowdcube pitch.

A description of Verto Homes and its borrowing from Funding Circle (their words not ours) is here on the FC site. This also refers to a new development at Hilgrove Mews - another Verto Homes development. According to Hilgrove Mews Ltd, they have two outstanding charges with FC. Hilgrove Mew's only two directors are the same two founders raising money on Crowdcube for Verto Homes. 

Investors on FC are now referring to the guys behind the Towan Heights development in less than glowing terms. These are the same guys behind Crowdcube's Verto Homes. The forum on this topic is now on page 8 and shows no sign of slowing down - its well worth a read here. In what seems a confusing trail of paperwork Verto Homes ceased being a member of Towan Heights LLP two months ago but the two main directors of Verto Homes signed up as members on the same date. The main picture used to promote Verto Homes Ltd on the Crowdcube pitch is of the Towan Heights development.

Meanwhile in an equally confusing move, Verto Homes have applied for EIS tax relief on the basis that they are not developers. Kevin McCloud's HAB Housing managed to obtain EIS way back in 2014 when they raised money on Crowdcube, again by claiming the developments were not theirs directly. Verto's opening line in their pitch adds to the confusion -

''Verto Homes designs, builds and sells intelligent, sustainable homes,.............''

The problem being that if these companies transgress any of the EIS rules before they give investors a ROI, HMRC will pounce and the tax relief and all interest will be due back in full.  At the date of writing EIS had not been granted to Verto Homes. It maybe that HMRC are beginning to wake up to the holes the policy suffers from. 

The new new deadline for the loan repayments by Towan Heights is the 12 August, which is 2 days after the Crowdcube pitch has closed. Towan have said that an undisclosed third party will fund the shortfall if the properties are not paid for by the 12th. The Crowdcube money would not be available until sometime later so there is no suggestion this is being used directly.

The same crew that are late with Towan Heights were also late with repaying another property related loan via FC. Investors on the forum are now talking about boycotting this company in the future. FC have as yet declined to comment when asked if they would take more business from them. According to the Crowdcube pitch, this company, in whichever guise they appear, is FC's largest client - so you can see why FC are being so cautious about the way this is all handled. Caution, in this case, is not working. 

Just imagine if FC decided not to continue doing business with these guys or when they tried to launch new loans, FC investors refused to fund them. This could have a material impact on the way the company Verto Homes develops and therefore on the shareholders currently oblivious to the Towan Heights saga.

Well now they know. Happy to be doing Crowdcube's job for them.

Verto Homes' Towan Heights has still failed to pay off £1.7m Funding Circle loans

We have written recently about Verto Homes and their development Towan Heights which has overdue loans with Funding Circle.

Funding Circle told lenders that they would consider taking legal action if the loans were not repaid by the end of July. The loans are still outstanding and the news from the forum is not too good - https://forum.fundingcircle.com/discussion/13078/2million-newquay-property-loans-late-what-is-the-penalty/p1

Of course these loans are not Verto Homes', the liability belongs top Towan Heights LLP, of which VH is a partner. Zero information about this situation is available to investors on Crowdcube but that is standard fayre.

Does it matter - well apparently not as VH have 'raised' £1.5m on their £1m target on Crowdcube. Although as we all know, this is pledged money not raised and as in the case of Crowdcube's own cash grab, pledges can melt away faster than ice.

Let's see if the legal action makes any difference. The excuses for not paying have now run the full gambit and come full circle - facts are the money has not been repaid and the units have not been sold or paid for. Tits and up come to mind. 

What's up with Verto Homes' overdue Funding Circle loans???

Verto Homes have crashed through their Crowdcube £1m total and heading for £1.5m.

IMPORTANT - Verto Homes Ltd, the company raising money on Crowdcube, does not have any direct exposure on Funding Circle. The company with £1.7m exposue is Towan Heights LLP, based at Verto Homes and with Verto Homes signing off their accounts. Further Towan Heights LLP was incorporated as Verto Group Developments Towan Heights LLP with the two founding members being the founders of Verto Homes. Hope that is clear!

We wrote about their background here - http://fantasyequitycrowdfunding.blogspot.co.uk/search?q=+verto and the founders involvement in Manor Rose, which resulted in the main director being banned for 14 years.

Meanwhile at Funding Circle they have loans outstanding - well over £1m from the chat here and they are, or at least some of them are, well overdue.

You wouldnt get that impression from reading the Crowdcube pitch. In fact when asked about Funding Circle loans, the founders answer was that they didnt currently have any - maybe he meant live on the platform? Anyway it certainly wasn't a very helpful answer!

It strikes us that these loans were supposed to have been repaid before the CC pitch went live - in which case they would need to be mentioned. But as the repayment is delayed, for reasons that vary from construction delays to final paperwork delays, surely a mention of this fact would be the only honest and upfront message to send investors? It's not like Verto don't know the repayment is late.If we know about it' why doesnt the brand new Crowdcube Out to Lunch Department; that is according to Luke Lang 'World Class'  - which BTW rhymes with ar......

You also have to ask just how far the FCA and HMRC are willing to bend over for Crowdcube when Verto - very clearly a house builder - is allowed to utilise EIS - very clearly not for house building.

As an aside we found this brilliant Q on the Crowdcube Verto forum - it really sums up the sophistication of Crowdcube's 285,000 'members'!

Hello Verto team,

Congrats for the project and the funding campaign!

I wonder how shareholders who have invested via Crowdcube will get the potencial dividend payment.

Will it be via bank transfer to each one of us? Does Crowdcube know our bank account?

Thanks in advance.