Council's waste management 'funders' worth nothing at all

EXCLUSIVE by LESTER CROSS

Over 3,200 investors who placed £220 million in the offshore fund which was meant to bankroll a £23 million waste treatment plant for Scottish Borders Council have been told the value of their shares is "nil" and will cease to exist following the formal dissolution of the company.

The devastating confirmation that the New Earth Recycling & Renewables Infrastructure Fund [NERR] is a completely worthless entity follows a seven-year investigation on the Isle of Man by joint liquidators.

A number of compensation claims have been lodged in the courts amid allegations the entire NERR operation was a scam of massive proportions. But the insolvency experts have concluded that it will not be possible to recover any assets for the victims.

Their money was being used to prop up penniless New Earth Solutions Group (NESG), the waste treatment outfit handed a £80 million contract by SBC in 2011, including the construction of a 'cutting edge' incinerator at Easter Langlee, Galashiels.

After five years during which time the council was strung along with a series of excuses for repeated delays by NESG and NERR the treatment plant scheme was abandoned after costing local taxpayers more than £2 million without a single brick being laid. The chosen technology would not function properly while NERR could not come up with the cash.

The NERR fund disaster has also cost the Isle of Man Financial Services Authority (IOMFSA) many thousands of pounds as the regulator has funded the entire liquidation process since the appointment of an insolvency team in 2016.

This week, in an update report for creditors and investors, joint liquidators Alex Adam and David Craine say their role had been to investigate the reasons for the failure of NERR, determine whether liability for the failure could be attributed to one or more parties, and then consider whether there were viable claims which could be brought against those parties. 

The report explains: "As you will be aware from previous updates, the Liquidators have been investigating potential claims against one or more third parties with the objective of issuing proceedings to recover value for the liquidation estate.

"Since our last report, the Liquidators have obtained detailed legal advice, including from leading Counsel, on the prospects of successfully bringing legal action against two different parties. Unfortunately, while the advice does suggest there is merit in relation to both potential claims, it has also highlighted a number of significant challenges which mean that the overall opinion is that it is more likely than not that the Liquidators would be unsuccessful should they pursue such claims." 

The liquidators have provided full details of the investigation IOMFSA as the Isle of Man Treasury had funded the costs of the liquidation to this point. 

Investors are told: "In light of the legal advice received, the FSA has recommended that Treasury withdraws funding other than as required to bring the liquidation to a conclusion. The Liquidators have considered whether there are any alternative sources of funding available to them however, in the circumstances of this case, have concluded that there are no realistic options."

The liquidators will now apply to the Manx court for orders that the liquidation be terminated and that the Company be dissolved. 

And the report concludes: "We are aware that many investors have been unable to fully write down the value of their investments in [the fund] while a possibility of a return from the liquidation estate has remained. As there is no longer any prospect of a return to investors, the liquidators can confirm that the value of all shareholders’ investments in [NERR] is nil and that the shares will cease to exist following the formal dissolution of the Company."

NERR provided significant finance to support and back the start-up and expansion of the UK-based NESG companies over a number of years. These investments were made into loss making activities and the development of operations which ultimately proved to be unsuccessful. 

As the loans made by NERR were unsecured at the date of the insolvency of NESG they ranked equally with the other unsecured creditors and behind the bank debt which was secured. 

At the date of appointment of the administrators, NESG and its associates had secured bank debt outstanding of £41.8 million. And yet Scottish Borders Council appears to have been blissfully unaware of the New Earth group's insolvent state. The New Earth administrators noted in their report that there were insufficient funds to repay even the secured bank debt in full.

A so-called sworn statement of affairs by the directors of NERR as the fund went under indicated equity investments of £60.8 million in NESG together with loans totalling over £128 million.

NERR investors were told in 2016 that potential recovery options included misfeasance, fraudulent trading, and fraudulent disposal or concealment of assets. But it seems none of those possible avenues resulted in success for the liquidators.

An observer of the NERR scandal told us: "I could have predicted that the liquidation would result in zero recovery back in 2016. Even as the life offices were continuing to list NERR on their platforms for the scammers to use, the tell-tale signs that the funds were worthless were obvious.

"It is, indeed, an absolute tragedy. For 3,250 investors who have lost every penny of their £220 million worth of investments. And this liquidation has been a complete waste of time, energy and hope for the victims."