Thursday, 16 June 2016

Offshore fund follows council contractors down the pan


Investors who were promised rich pickings by investing their cash in the New Earth Recycling & Renewables Infrastructure Fund [NERR] - the offshore entity chosen to finance a £21 million waste treatment facility for the Scottish Borders - are unlikely to get any of their money back after the Fund filed for liquidation in the Isle of Man courts.

The collapse of NERR, whose directors and promoters have creamed off millions of pounds in fees in recent years, comes hard on the heels of the administration and subsequent quick fire sale of New Earth Solutions Group, the company selected by Borders councillors to solve waste management issues.

It became apparent last year that NERR could not fund the Easter Langlee project, forcing the Council to abandon a 24-year contract with NES Group after just four years.

As this publication has asked before: how and why did elected members sanction involvement with two incompetent and debt-ridden businesses in a deal which has cost council taxpayers and shareholders millions of pounds for no return? The judgement of the councillors and officers involved in this Borders fiasco must be called into question, scrutinised and challenged.

The entire New Earth "empire" appeared to be heading for financial oblivion only last week when administrators were appointed after a proposed deal to sell the businesses collapsed in disarray. But only 48 hours after the financial 'fixers' Duff & Phelps were called in by NES management it was announced the troubled outfit had been sold to DM Opco Ltd., a £1 company set up in April by James McKelvey, a Yorkshire-based 'accountant'.

This somewhat mysterious transaction seems to have triggered the demise of NERR with Fund director Michael Richardson, of Premier Group Isle of Man, breaking the bad news to investors and shareholders via yet another letter posted on the company's website.

He explained: "The administrator has moved quickly and has sold the New Earth Group of companies to DM Opco, the full details of which are unknown.

"Taking into consideration that the assets of NERR are largely subordinated to the senior lenders' (Nord Bank and Co-op Bank), the directors consider it unlikely that the sale of these assets to DM Opco will achieve over and above the amount of senior lending. It therefore remains unlikely that the sale of these assets will generate a return for the Fund.

"This will come as extremely disappointing news to everybody connected with the Fund, including the directors, who believe they have made every effort to negotiate the best solution for shareholders of the Fund."

Those efforts included the abortive talks with the developer of heat and power plants in Europe which, according to Mr Richardson, had the potential to repair shareholder value in full over the course of time. It was, he claimed, regrettable that the proposed deal did not successfully conclude.

Instead the Isle of Man Financial Services Authority, with the consent of Mr. Richardson and his fellow directors, has filed a claim with the island's High Court of Justice seeking a winding-up order in respect of the fund.

The authority also asked the court to appoint provisional joint liquidators of the Fund, with a view to them taking control of assets "for the purpose of preserving them". A court hearing scheduled for next month will decide whether or not NERR should be placed into liquidation.

A 26-page document directly linked to the case which is accessible via the Isle of Man Financial Services Authority website includes the two following questions and answers:

What has happened to the money I invested?

The money invested by you was invested by the governing bodies of PIOF and Eclipse into NERR, and then onwards by NERR into NESFM and NESG (the New Earth companies) either by purchasing shares in or lending money to those companies. The recovery of value in those investments by NERR depends on profits and in particular cash flows being generated by the assets and operations of NESFM and NESG.

NESFM and NESG also owe money to other lenders who have a higher priority in being repaid.  As a result, the repayment of the loans made and payments on the shares held by NERR would only occur after those, more senior, lenders were repaid.

Will I get any of my money back?

At this stage it is not possible to estimate the amount of any recovery on the investments made by NERR, and hence PIOF and Eclipse.  The financial distress of NESFM and NESG and the presence of more senior lenders, does however mean that substantial recovery of value from those investments may be unlikely.

That information is less than encouraging for hundreds of investors around the world who were persuaded to participate in the Fund by a range of financial advisers.

It is understood NERR has loan notes totalling some £36 million with NESG and NESFM while the two banks involved are also due many millions of pounds.

COMING NEXT: How those who managed and promoted NERR syphoned off millions for themselves, and how the Fund was promoted to ‘unsuitable’ investors.

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