Liquidators of the failed offshore investment fund which was selected by councillors in the Scottish Borders to bankroll a planned £23 million waste treatment facility believe it may still be possible to salvage something from the wreckage for the benefit of thousands of shareholders and creditors.
Three years after the Borders local authority was forced to abandon their worthless waste management contract with insolvent New Earth Solutions Group at a cost of £2.5 million to local taxpayers, the intensive efforts to discover what led to the collapse of the firm's partnership fund may soon reach a conclusion.
Isle of Man-based New Earth Recycling & Renewables [Infrastructure] Fund (NERR) had 3,249 investors and a published value of $292 million when it collapsed in 2016. It was later discovered that £39 million of the NERR resources had been used to shore up the New Earth Solutions companies which were in serious financial trouble while their contract with Scottish Borders Council was 'live'.
NERR was managed and promoted by Premier Group (IOM) Ltd., another business which was liquidated shortly after the fund crashed, apparently leaving investors and creditors with little or no chance of seeing the return of their cash. Premier's bosses collected many millions of pounds in fees from NERR and a range of other 'high risk' funds.
And in the intervening period a number of disgruntled investors successfully took their grievances to the Financial Ombudsman Service who found they had been wrongly recommended to put money into the unregulated NERR fund by financial advisers.
The NERR fund's joint liquidators Alexander Adam and David Craine, of accountancy firm Deloitte's, have just published an update for the fund's shareholders...their first report since September last year.
In it they remind readers the Company’s [NERR] assets were principally investments by way of equity and unsecured loans in three companies which were located in the United Kingdom.
"The value of those investments at the date of winding up was close to nil. The role of the Joint Liquidators is therefore principally to: investigate the reasons for the failure of NERR; determine whether liability for the failure can be attributed to one or more parties; working alongside our legal advisers, establish whether there is any legal recourse against one or more of those parties; and to the extent that that those third parties are expected to have the resources to meet any successful claim, seek to recover value from them."
The report adds that investigations are focused on the matters which resulted in a direct loss to the Company (the value of investments made in the ultimately insolvent UK trading companies and the fees paid by the Company to the various service providers - many of which were based on the calculated NAV (Net Asset Value).
The sheer scale of the task facing the investigators can be gauged from the next section of the report which reveals: "We have secured in excess of 200,000 unique documents from the various advisers and service providers to the Company, many of which run to hundreds of pages.
"Our initial review of those documents identified a number of potential issues which we consider could lead to causes of action. These were passed to our legal advisers for further consideration. That review remains ongoing, as the review of such a volume of documentation is time consuming but essential to understanding the underlying business and transactions of the Fund and that process has inevitably identified areas where further investigation has been required to be undertaken."
"In the meantime we have also managed to secure access to the records of one service provider which had previously been unwilling to share their files with us and which have provided valuable insight into the Company’s affairs."
Mr Adam and Mr Craine say they are limited in what information they can share with shareholders and creditors on potential causes of action so that they do not prejudice any potential claims.
But they add: "However, we remain reasonably confident that our investigation will result in making claims for the benefit of creditors and shareholders in due course."
The joint liquidators expect to be in receipt of legal advice in respect of any possible causes of action by late April 2018. Following consideration of such advice they will write to update interested parties on how they intend to proceed.