Another catastrophe for 'green' investors

by EWAN LAMB

Another investment firm managed by a director of the failed fund chosen by Scottish Borders Council to bankroll a £23 million waste treatment plant is to be investigated after collapsing with debts running into many millions of pounds.

John Bourbon, a former head of the Isle of Man financial services regulator who helped manage the bankrupt waste management investment entity is a former chairman of the Quadris Environmental Forestry Fund which featured in a Manx High Court case this week.

Borders councillors and chief officers were involved in a four-year fruitless relationship with New Earth Recycling & Renewables [Infrastructure] PLC (NERR) which eventually crashed, leaving 3,269 investors out of pocket to the tune of $292 million.

NERR was the investment partner of Dorset-based New Earth Solutions Group, handed a £80 million contract by SBC in 2011. But all of NERR's resources were being ploughed into propping up New Earth Solutions while the local authority spent at least £2.4 million on a venture which had to be abandoned in 2015.

Another Isle of Man fund called Eco Resources, "specialising" in bamboo plantations in Nicaragua also had Mr Bourbon as a director. Its 189 investors lost £60 million when that fund headed towards liquidation.

Quadris, formed in 2001, and chaired by Mr Bourbon before he and three fellow directors resigned, sunk shareholders' cash into teak forests in Brazil.

In an exclusive report in today's (Thursday) Isle of Man Independent newspaper, journalist Adrian Darbyshire tells the story of Tuesday's court hearing into the Quadris collapse. This is the text of Mr Darbyshire's report in full:

An island-based fund that invested in teak plantations in Brazil has been ordered to be wound up by the high court – as it is unable to pay its multi-million debts.

Deemster [judge] Andrew Corlett said the former directors of Quadris Environmental Forestry Fund PCC Plc had questions to answer about the company’s ‘lamentable’ financial situation.

It owes its American lender between £17.5m and £52m but the scale of its total debts is as yet unknown.

Quadris Environmental Forestry Fund PCC plc, which has a registered office on Athol Street, Douglas, was launched in 2001 and had more than £100m invested in the teak plantations of Floresteca in Brazil.

But in 2016 it posted a $20m loss, with the auditors saying there were significant concerns about the company’s ability to continue as a going concern.

The following year, it was declared in default by US hedge fund Crestline Arvore who appointed a receiver. Quadris’s bank accounts were frozen, leaving around 1,200 investors fearing they will lose all or most of their investments.

The court this week heard that the regulator, the Financial Services Authority, had recommended that Quadris be wound up as the fund could not pay its debts as they fell due.

It had no assets or access to cash and it appeared that no compromise could be reached between the fund and its debenture holder.

Quardis’ directors had all resigned as had its registered agent, Estera Fund Services.

The petition for the winding up of the company was made by Ethical Investors (UK) Ltd, who the court heard are contributors who were ‘trying to get to the bottom’ of what happened.

Advocate for the claimants, Chris Webb, explained that the fund was set up to invest in teak forestry plantations in Brazil.

When it found itself with a liquidity issue, a lender was found, Crestline Arvore. This was owed somewhere between £17.5m and £52m but there was uncertainty over how much was lent and how was owed.

With the fund in trouble, the FSA appointed Gordon Wilson of  CW Consulting first as advisor and then in February 2017 as controller.

Mr Webb said there was a ‘myriad of issues’ and it was ‘just and equitable’ that the fund be wound up.

He said: ‘This isn’t a straight forward winding up. What is clear is that everything is unclear here. It would appear all the assets are now with CL Arvore.’

He said there was a large number of investors who would have expected a return in terms of the teak being cultivated but it was now anticipated they will be receiving zero pence in the pound.

Ethical Investors Ltd had been seeking the appointment of two directors of Grant Thornton as joint provisional liquidators. It was prepared to pay the cost of the winding up, the court heard.

The directors named in the claim form  – John Mudge, John Bourbon, Nicholas Sheard and Ernest Thorn – had all resigned between 2016 and 2018.

Ordering that Quadris be wound up, and joint provisional liquidators be appointed, Deemster Corlett said: ‘The liquidators are going to try to delve into what’s happened here. They will investigate what the directors were doing. It needs looking into.’

Quadris was not represented at the high court hearing.

Some investors in Quadris opposed Crestline Arvore’s action to appoint a receiver, insisting the fund was not in default. They also criticised the regulator for ‘sitting back and doing nothing’.

Directors of all three funds mentioned above took generous fees for managing and promoting the respective entities. We have already reported on the millions of pounds collected over the years by management of the NERR fund.

According to the annual report for the Quadris fund in 2012 Mr Bourbon received £36,000 for chairing the company while his fellow directors picked up £30,000 each. Total management fees (Manager Blue Seas International Ltd) for the year amounted to US$412,157.

In his chairman's report for that year Mr Bourbon wrote: "“Another negative feature of the last year has been the stance of the UK Financial Services Authority (FSA) with respect to Unregulated Collective Investment Schemes (UCIS). The FSA has been actively discouraging UK Independent Financial Advisers (IFA s) from investing their client s money in UCIS schemes on the basis of risk and suitability.

"The impact is to reduce new investment into the fund exasperated by the disposal of existing holdings by IFA s who fear loss of Professional Indemnity cover because insurers take into account FSA guidance. The fund is arguably unfairly disadvantaged with the UCIS mantle.”

Those who invested in Quadris and have now lost everything probably wish they had heeded the FSA's warnings.