New Earth sale may have breached insolvency rules, director claims

by EWAN LAMB

A claim has been made that the prepackaged sale of New Earth Solutions Group, the debt-ridden waste treatment business handed a multi-million pound contract by Scottish Borders Council, may have breached insolvency rules while also scuppering a takeover bid by a Luxembourg recycling company.

The extraordinary allegation has come from John Bourbon, a former director of Isle of Man-based Premier Group and its subsidiaries which had a stake in New Earth and its allied investment fund New Earth Recycling & Renewables [Infrastructure] Ltd (NERR).

Joint liquidators currently investigating the affairs which led to the complete collapse of NERR and the loss of £171 million of investors' cash wanted to bring Mr Bourbon and fellow director Michael Richardson before a Manx court to be interviewed under oath. But a judge has rejected the request from accountancy firm Deloitte acting on behalf of the Isle of Man Financial Services Authority.

Following the court judgement Mr Bourbon - he was once head of the Isle of Man regulator of financial services - has this week given an interview to the Isle of Man's Manx Independent newspaper.

Mr Bourbon told the paper it was ‘absolutely not the case at all’ that the directors of NERR were trying to hide something.

He said: "We have always stressed that we would assist the joint liquidators with their inquiries, and we made all our electronic files available to them.

"Given the volume of documentation and the complexity of the matter the directors wished to provide responses to any questions in writing. We understand that there is in total nearly a quarter of a million documents now in the liquidator’s possession and that these can run in some cases to over one hundred pages."

Mr Bourbon added: "It became clear during the court proceedings that the liquidator had not read all these documents but had used some form of word search engine to process the information."

New Earth had involved many corporate entities and structures both in the Isle of  Man and in the UK.

The principal waste recycling operations were based in the south and south west of England with the largest operations in Avonmouth where the main Energy from Waste plant was located.

Avonmouth was the site which so impressed Borders councillors and officials during a visit in October 2014, Unfortunately the entire plant had to be shut down because of technical issues and has yet to reopen. Some of its waste conversion technology was to have been copied on a smaller scale at Easter Langlee.

These various facilities in England were, and remain, services provided to local authorities in the UK under long-term contracts for the processing of household and food waste, explained Mr Bourbon.

NESG was supposed to develop a £23 million waste treatment facility at Easter Langlee, Galashiels, for Scottish Borders Council using investment money from NERR. But the cash for the Borders project was repeatedly 'put on hold' while NESG's technology proved to be useless. The Borders project was abandoned in 2015 after the council squandered over £2.4 million for no return.

As Mr Bourbon explained in his interview this week external financing for NESG was provided by a coalition of Nord LB and the Co-operative Bank. But the former sold out its interest to the latter which subsequently called in its loan and arranged a pre-package administration process with insolvency experts Duff and Phelps in the UK.

Company documents show Duff & Phelps were appointed administrators on June 7th 2016 and executed the pre-packaged sale of the Group's businesses and assets to purchasers DM Opco Ltd for £5.9 million on June 9th.

An unnamed interested party, believed to be Global Gateways, a waste recycling business with headquarters in Luxembourg, had been in negotiations to purchase NESG's business in the first half of 2016 but withdrew in May of that year. DM Opco was to sell the assets on to Irish based Panda Green in October 2016.

Mr Bourbon told the Manx Independent: ‘We understand that investor groups are of the opinion that the pre-pack may have breached the UK Insolvency Act but are unaware of any action which the joint liquidator [of NERR] may have taken to seek restitution for investors.

"At the point at which the pre-pack was arranged the directors were still in detailed negotiations with Global Gateways for the take-over of the complete business."

He said this could have provided a recovery for investors, although they would have been the subject of a lock-in for up to 10 years.

"It is our understanding that Global Gateways were and remain interested in the acquisition of the former New Earth businesses," he added.

In a report to creditors in September 2017 NERR's joint liquidators stated: "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 NERR, 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."