Fund's collapse referred to Manx High Court

by EWAN LAMB

The offshore investment firm that failed to bankroll the development of a £23 million waste treatment plant for Scottish Borders Council is now the subject of a liquidator's report to the Isle of Man's High Court of Justice detailing factors in the run up to the company's collapse which warrant further investigation.

A team of insolvency experts which is being funded by the island's Financial Services Authority has now spent more than five years probing the affairs of the New Earth Recycling & Renewables [Infrastructure] fund - known as NERR - following its spectacular demise in 2016. 

A year earlier the Borders council and NERR's partners the New Earth Solutions Group (NESG) were forced to abandon their 24-year waste management contract, worth up to £80 million when it was signed in 2011. The Galashiels treatment facility was never even started although the local authority spent more than £2 million on consultants and expensive law firms.

Since the Borders deal was scrapped it has emerged that NESG, which has also been dissolved, owed NERR £39 million while NERR itself had debts and liabilities of £113 million. Questions have been asked about a possible lack of so-called due diligence by SBC before it formed the NESG partnership.

The 3,250 investors in the Manx-based fund had placed a total of £220 million with the managers of NERR, the also liquidated Premier Group (Isle of Man). The NERR liquidators have been scrutinising some 200,000 documents linked to the financial mess.

In a report to creditors issued this week joint liquidators Alex Adam and David Craine reveal: "On 23 August 2021, the deemed official receivers submitted their report to the Isle of Man High Court of Justice, pursuant to Section 176 of the Isle of Man Companies Act 1931, detailing the results of their investigations into the factors leading to the Company’s collapse into insolvency and presenting those matters which require further investigation to be conducted by the relevant authorities. We have sought legal advice as to whether it would be possible to share the contents of the report with creditors and investors however we are advised that, as it is a report to the court, it is confidential and cannot be shared."

And the report also says: "The Joint Liquidators, in concert with our legal advisors, have continued to progress our investigations into the roles of other advisers to the Company. In respect of those investigations, since our last update we have obtained further input from our legal advisers, setting out further steps required to allow for a formal counsel’s opinion to be obtained on the viability of a potential claim which, if successful, has the prospect of resulting in a return to investors. 

"We are currently undertaking that additional work. We are unable to provide further details at the present time due to the risk of prejudicing any possible future action, however we will provide further information as and when we are able to. Funding There is no change to the funding arrangement with the Isle of Man Financial Services Authority (“FSA”). As you are aware, the funding of the liquidation remains subject to ongoing review by the FSA and can be withdrawn at any time."

Section 176 of the 1931 Act says a liquidator/receiver can present a report to the Court "if the company has failed, as to the causes of the failure; and whether in his opinion further inquiry is desirable as to any matter relating to the promotion, formation, or failure of the company, or the conduct of the business thereof.

"The official receiver may also, if he thinks fit, make a further report, or further reports, stating the manner in which the company was formed and whether in his opinion any fraud has been committed by any person in its promotion or formation, or by any director or other officer of the company in relation to the company since the formation thereof, and any other matters which in his opinion it is desirable to bring to the notice of the court."

Section 207 of the same Act  explains that when an official receiver has made a further report under this Act stating that in his opinion a fraud has been committed by any person in the promotion or formation of the company, or by any director or other officer of the company in relation to the company since its formation, the court may, after consideration of the report, direct that that person, director or officer shall attend court and be publicly examined as to the promotion or formation or the conduct of the business of the company, or as to his conduct and dealings as director or officer.