Friday, 8 September 2017

Fees of £40 million taken from bankrupt fund


An investigation by insolvency experts has discovered that a staggering £40 million worth of fees were dispensed by the directors of the 'green' investment fund which was meant to pay for a planned waste treatment plant to serve the Scottish Borders.

The money removed from the Manx-based New Earth Renewables & Recycling [Infrastructure] fund (NERR) to pay controllers, managers, custodians and promoters far exceeded the £23 million required to cover the cost of Scottish Borders Council's proposed treatment facility at Easter Langlee, Galashiels.

Yet NERR could never come up with the resources for the Borders plant in the four years before the local authority's deal with contractors New Earth Solutions (NES) was abandoned in February 2015. By that time SBC had spent £2.4 million preparing a project which never got off the ground.

A newly published report to creditors and shareholders by NERR liquidators Deloitte has also revealed that the fund never received any subscriptions from investors after January 2014, long before Project Easter Langlee had to be scrapped. But it continued ploughing money into the loss making NES companies, providing loans in excess of £24 million.

The report explains: "The Company (NERR) had provided significant finance to support and back the start-up and expansion of the UK Trading Companies (NES) over a number of years. These investments were made into loss making activities and the development of operations which ultimately proved to be unsuccessful."

New Earth Solutions also suffered a financial collapse last year when accountancy firm Duff & Phelps were appointed joint administrators.

Deloitte's state: "The Joint Liquidators (of NERR) have not entered into any form of settlement with the Administrators and retain an open mind in relation to what steps should now be taken. One option available to the Company (as an unsecured creditor) and one which we are presently considering, would be to seek the appointment of a liquidator over NESGL and/or NESFM to investigate the affairs of those companies (including during the period of Administration)."

Shareholders of NERR are told that given the insolvent position of the Company’s investments, the joint liquidators are continuing to investigate the potential for recovery from other sources.

"We have actively been progressing our enquiries into the failure of the Company and, with the assistance of legal counsel in the Isle of Man and the United Kingdom, have focused on specific issues that, based on our and their experience, we consider have the best chance of securing a valuable return to the shareholders and creditors of the Company."

In what is probably the most disturbing section of the report Deloitte's write: "Given that the UK trading companies performed poorly and ultimately failed, our investigations have focused on the actual causes of loss to the Company. 

"As well as the money that was lost in the investments in the UK Trading Companies, large sums of money (in excess of £40 million) were paid out to service providers. Many of these fees were based on the NAV (Net Asset Value) of the fund, which showed significant increases despite the underlying businesses’ failure. Amongst other things, we are focusing on the basis for the valuation of the Company’s assets and the continued investment of investors’ money into failing businesses."

More than 3,000 investors in NERR had been told there was little or no chance of recovering any of their lost cash. But the new report appears to offer a small glimmer of hope.

It says: "As previously stated in our reports, we are limited in what information we can share with you so that we do not prejudice any potential claims. Further, due to the complex nature of the investigations and voluminous documentation, it may be some time before we can provide you with the final results of our enquiries.

"However, based on the enquiries made and legal advice received so far, we are reasonably confident that our investigation will support the making of potential claims for the benefit of creditors and/or shareholders in due course."

But no story about NERR and NES would be complete without a bizarre twist, and this particular tale of woe is no exception.

The assets of NES may have been sold off by Duff & Phelps for a little over £5 million, and the ownership of those subsidiary companies now rests with Irish-based PandaGreen.

But it seems a consortium headed by waste management company Global Gateways together with a group of financial advisors are attempting to put together a bid to take over the assets.

Deloitte's report sets the scene. "Investors may be aware that we have received an informal approach from Ms Jane Sanders, acting on behalf of Global Gateways and a group of Independent Financial Advisors, mooting a scheme whereby Global Gateways would bring some kind of legal claim in an attempt (as previously attempted without success) to gain control of some of the former assets of the UK Trading Companies on terms and for consideration to the Company and its creditors and shareholders which have not been specified. 

"We have sought to obtain further information and supporting evidence from Ms Sanders to enable us to assess whether such a scheme and the legal claim (apparently directed against the Administrators) has any merit or is likely to benefit creditors and shareholders.

"At the date of this report, we have not received any answers or supporting evidence in response to our requests, either from Ms Sanders or Global Gateways. In the absence of such supporting evidence and having obtained specialist legal advice in the Isle of Man and United Kingdom, we are not presently convinced that there is any basis to undo the transactions with third parties who now own former assets of the UK Trading Companies or that there would be a benefit to the creditors and/or shareholders in doing so."

One financial expert commented after reading Deloitte's report: "The scale of fees being creamed off by those in charge of NERR is quite unbelievable. It is becoming abundantly clear that the contract NES had with Scottish Borders Council gave the NERR fund kudos and credibility with potential investors over a four year period. 

"Unfortunately NERR was never in a position to deliver the Borders waste treatment plant, and SBC were kept onside by a string of plausible but worthless excuses. I'd say they were taken for a ride".

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