Credit Crunch – Some Lessons For Structuring And Operating Property Funds

Key Points

• Fund promoters may lose their fund business without compensation.

• The best defence is to manage and to be seen to manage conflicts arising from related party agreements.

In good times, many legal questions may be academic. But when there is a crisis, whether basic legal principles have been followed becomes a vital question.

The Australian consequences of the sub-prime crisis are still unfolding. Nonetheless, we know from previous financial crises (both here and overseas) that when people lose money and lawyers and regulators get involved, the focus inevitably will turn to conflicts of interest. Conflicts are inevitable within financial conglomerate groups and related party contracts are the norm. So from a legal and regulatory perspective it is important to ensure these related party contracts were initially entered into, and continue to be managed,