ASIC opens Bathla Group inquiry, warns funds before 2027

By Grace Kim

Bathla Group collapsed owing $3.4 billion to creditors, and ASIC has begun a formal investigation into the developer’s conduct.

ASIC Commissioner Simone Constant said the formal inquiry came with a broader warning to private credit funds over poor practices involving fees, disclosure, distribution and conflict management. Many of those problems remained a year after ASIC’s first private credit report identified them.

What does ASIC’s inquiry cover?

Constant confirmed on Tuesday that ASIC had begun a formal investigation into Bathla’s conduct as it released its latest surveillance of the private credit sector. The watchdog was also making inquiries about private lenders, she said, but had not begun formal investigations into those lenders.

Bathla was a private credit-backed builder based in Western Sydney. Constant described its collapse as a concerning and dark case study of why private credit needed to root out weak practices.

ASIC has started a formal inquiry into Bathla, while its broader lender inquiries have not yet produced formal investigations.

What did ASIC’s 24-fund review find?

ASIC’s latest surveillance covered 24 wholesale and retail private credit funds with $18 billion in combined assets under management. The regulator found complex and opaque structures rife across the sector.

Bathla’s borrowing structure amplified those concerns. It involved more than 500 special purpose vehicles and more than 40 private credit lenders. Constant said the resulting competing interests exacerbated fees and risks.

The economic benefits for investors were also uneven. Of 22 funds surveyed, only two passed on the full economic benefits of interest earned and borrower fees to investors, according to ASIC’s review.

“We’ve seen pockets of improvement, and indeed we’ve called out some better practice in this report, but in a consistent and comprehensive way, we haven’t seen the improvement,” Constant said.

ASIC’s review shows improvement at some funds, but it does not show a consistent, sector-wide overhaul.

Why is ASIC moving toward enforcement?

Constant said many of the poor practices ASIC identified in its first private credit report a year earlier remained, including gaps in fees, disclosure, distribution and conflict management.

She tied the urgency to rising interest rates and slowing economic growth. “They will come under real stress and pressure, given the economic climate and the credit climate we now find ourselves in,” she said.

Constant called ASIC’s message a final warning to funds before 2027, when the regulator will shift to enforcement action. ASIC had already issued six interim stop orders since September, including two notices to Angas Securities over its ties to Bathla.

ASIC has already used stop orders, but its broad shift to enforcement action is scheduled for 2027.

What does Angas Securities dispute?

ASIC alleged on Monday that Angas Securities failed to disclose the fund’s exposure to Bathla and the risks arising from its holdings. The regulator’s allegation focused on what investors were told about the Western Sydney developer.

Angas Securities executive chairman Andrew Luckhurst-Smith said the fund had little exposure to Bathla and had lost no money from its loans to the developer. He blamed a transcription error in a document Angas provided to ASIC for creating a false impression about the size of that exposure.

Angas disputes the scale of Bathla’s exposure; ASIC says investors were not properly informed. Before 2027, private credit funds will need to address weak practices around fees, disclosure, distribution and conflict management, with Constant warning that higher interest rates and slowing economic growth will leave the sector under greater stress.