Sunday, 19 June 2016

Liquidated fund a gravy train for some


Investors and shareholders in the offshore infrastructure fund which was to have financed a £21 million waste treatment facility for the Scottish Borders seem certain to lose everything following the spectacular collapse of the troubled operation.

But detailed research by Not Just Sheep & Rugby has uncovered financial information which shows how the directors of the Isle of Man-based company who launched and ran the New Earth Recycling & Renewables [NERR] fund in 2007 scooped up more than £24 million in fees over a six year period.

It was confirmed last week that joint provisional liquidators had been appointed to NERR which is extremely likely to be wound up after investing large sums of investors' cash in the debt-ridden New Earth Solutions Group of companies [NES].

NES was awarded a potentially lucrative waste management contract by Borders councillors in 2010, but the technology selected for a treatment plant at Easter Langlee, Galashiels, was incapable of allowing the project to proceed while NERR could not provide the money for the scheme despite being the preferred funder while well established banks who had expressed an interest were rejected.

The failure of the contract, which was abandoned in 2015, has cost Borders council taxpayers £2.4 million while NES lost at least £1.3 million in the venture. The Group crashed into administration earlier this month only to emerge under new ownership 48 hours later.

That sequence of events was quickly followed by the announcement from Michael Richardson, one of the directors of the Premier Group (IOM) Ltd that NERR was facing liquidation. A court hearing on the island next month will determine whether the Fund, whose suspension in 2013/14 meant investors could not redeem their stakes, will cease to exist.

A warning has already been issued that banks who are owed many millions of pounds by NES will take priority when NERR's assets are being divvied up and scores of investors are unlikely to be reimbursed. And the Manx financial services authority points to statements from NES posted on the Channel Islands Stock Exchange in May "show large debt positions and operating losses".

But in sharp contrast it appears that bosses at Premier Group (IOM) have prospered as a result of NERR's transactions and deals between 2009 and 2014. During that time Premier acted as promoters and managers of the Fund as well as being responsible for sales and marketing. This entitled Mr Richardson and his colleagues to charge generous fees for fulfilling their various roles.

A detailed examination of NERR's annual accounts which can also be accessed on the Channel Islands Stock Exchange website shows the scale of those fees paid to Premier Group.

Over the six years under review promoters' fees added up to £6.9 million, including a payment of over £2.4 million in 2014 alone.

The levies for sales and marketing were even more spectacular, totalling £16.46 million between 2009 and 2014. A note accompanying this set of figures explains: "maximum of eight per cent of subscriptions for shares is payable to the promoter to meet introductory and advertising costs and are therefore classified as sales and marketing expenses".

One financial expert told us: "A sales and advertising budget of three to four million pounds a year is equivalent on the money spent on marketing by a very large business with hundreds on the payroll. I have seen no evidence that NERR fell into this category. In fact the entire operation appears to have been run from a relatively modest office in Douglas, Isle of Man".

In 2013 alone the sum of £4.441 million was spent on "sales and marketing expenses" for the Fund. Finally, management fees added up to more than £750,000 over the six years with a £264,000 payment recorded in the final year before NERR was suspended and de-listed.

The six-year bonanza for NERR's controllers coincided with the disastrous liaison between Scottish Borders Council, NES and NERR. So what kind of checks did SBC elected members and officers make on NERR's accounts after being informed the Fund was struggling to back the Borders project? Were they aware - or even attempt to make themselves aware - of the arrangements which proved so obviously lucrative for the Board of Premier Group?

We have already revealed how in 2014 the council granted NES and NERR a nine-month contract moratorium to enable contractor and funder to address serious technological and financial issues.

While the contract was temporarily mothballed the following fees were being collected from NERR by Premier Group: promoter's fee £2,472,452; sales and marketing £3,937,196 and management £264,641. Presumably the sum of £693,711, described as exit penalties charged to 'redeemers' was also retained. Yet the Fund was incapable of financing the long delayed Borders waste treatment facility. It recorded a loss of £30 million in 2014.

The grand total in fees over the six financial years amounted to £24,125,935, sufficient to pay for the Easter Langlee plant with just enough left over to cover the £2.4 million squandered by the council on expensive consultants, specialists and lawyers.

COMING NEXT: NERR should never have been marketed to ordinary punters.

No comments:

Post a Comment