The specialist investment fund which would have provided the financial resources needed to develop a new waste treatment facility for the Scottish Borders is controlled by two offshore companies based in the British Virgin Islands (BVI), one of the world's premier tax havens.
And it has also emerged that the two directors of New Earth Solutions (Scottish Borders) Ltd., the contractors selected by Scottish Borders Council (SBC) to construct the plant at Easter Langlee, Galashiels, each have a stake in those offshore businesses, Premier Group Distribution Inc. (PGDI) and B4 Sales Ltd., both with addresses in Road Town, Tortola, BVI.
Meanwhile, a major restructuring of the New Earth Solutions (NES) Group in December 2014 - two months before the 24-year deal with SBC collapsed - means that same investment fund NERR [New Earth Recycling & Renewables (Infrastructure) PLC] together with B4 Sales and members of NES management directly or indirectly own the entire share capital of the Group of companies, including the subsidiary which bears the Borders name.
The complicated network of inter-linked businesses and a series of multi-million pound transactions between the various entities can be found in NERR's latest prospectus for potential investors, published recently by Premier Group (Isle of Man) Ltd., yet another offshore business which is in turn managed by its BVI namesake.
Companies in the Virgin Islands and any money paid by them to non-residents are exempt from all local taxes and stamp duty. The sale or transfer of shares to third parties is not liable for capital gains tax under BVI law while local businesses are not required to file tax returns or any other type of declaration to the BVI Government regarding overseas income.
The current directors of NES (Scottish Borders) Ltd are David Whitaker and Jonathan Fogg, both of whom also sit on the Group board and act as directors for a number of other NES subsidiaries. Their directorships at NES earn them £60,000 a year each. Mr Whitaker is also a director of Premier Group (Isle of Man), the management company of the NERR fund.
In April 2011, after SBC signed their original contract with New Earth, the company told the local authority the Borders project was to be funded by a combination of money from NERR and from refinancing of the NES waste treatment complex at Avonmouth, Bristol. Subscriptions into NERR would be allocated to the development of the Galashiels Mechanical Biological Treatment (MBT) facility with construction to commence in autumn 2011.
The MBT would have diverted at least 80% of Borders refuse from landfill. But work on the plant was never even started, and councillors later amended the contract, leading to its termination earlier this year. The reasons for changing the terms of the deal have not been made public.
The NERR prospectus explains that the management shares in Premier Group (IOM) are held offshore by PGDI and B4 Sales, both limited liability companies.
The document says: "PGDI is a special purpose vehicle formed to act as a financial intermediary for NERR and is owned jointly by Michael Richardson and by a trust of which David Whitaker is the main beneficiary. PGDI has also established a management share participation scheme in which Jonathan Fogg participates via a non-voting interest in the company."
In a separate entry outlining the role of B4 Sales Ltd, the prospectus states: "B4 Sales is a special purpose vehicle formed to hold investments in various entities and is wholly owned directly or indirectly by Michael Richardson and David Whitaker and parties associated with them." That company also has a direct interest in New Earth Solutions.
The offshore fund NERR now has more than £150 million staked in the NES companies. And as explained earlier it now also owns all of the share capital in the Group. In recent years a number of NES investors including Ludgate Environmental Fund, Colebrooke Offshore Ltd, Carbon Trust Investments Ltd, and the Irish-based Impax Group all wished to dispose of their sizable holdings in the New Earth businesses. And in each case the shares were acquired by NERR at a total cost of around £26 million.
NES Group reported an annual loss of £11.996 million in its most recent annual accounts compared to a loss of £1.436 million in 2013.