BVI Offshore Business: Grey Area

The Financial Services Authority (UK) is going to challenge a last year ruling in favour of BVI and Panama-based companies which said the FSA overstepped its powers by carrying out a request from the Securities and Exchange Commission (US) to recover documents.

The case relates to SEC investigation into Rhino, the NY-based investment adviser, when the SEC asked the FSA to recover 20 boxes of correspondence created over almost ten years and held by the London accountant Goodman Jones, which the SEC said might be relevant to its investigation. His accountancy firm held documents on behalf of two companies - the British Virgin Islands-based Creon Management and Panama-based financing company Amro International. There was no SEC investigation concerning these Panama and BVI companies, also they were not party to any SEC action. These two companies won a legal challenge against the FSA, saying it was “acting unlawfully in agreeing to appoint inspectors … to obtain the documents”.

In the opinion of the head of banking, finance and regulatory litigation at Allen & Overy Calum Burnett, the current case would help clarify the powers of the FSA to seek information on behalf of another regulator.

There is a memorandum of understanding between the Financial Services Authority and the Securities and Exchange Commission to exchange supervisory information and a history of close co-operation.

The former North Las Vegas mayor Mike Montandon, who is now the governor candidate of Nevada from Republicans, last year received a $10,000 campaign contribution from the British Virgin Islands-registered company Forich Group Ltd. This BVI company is an affiliate of Runvee Inc., a development firm having real estate interests in North Las Vegas.

Meanwhile, foreign nationals and foreign corporations are not allowed by federal election law to donate to Americal political campaigns. Montandon says he will return an illegal contribution from the BVI company. By his words, accepting the donation was a simple mistake.

The owner of Runvee Inc. is the Shaw family of Hong Kong who contributed another $40,000 to Montandon’s gubernatorial campaign. The candidate says this family has permanent resident status in the US, this fact providing legal status to their donations.

Companies linked to the property magnates Robert and Vincent Tchenguiz have filed creditors’ claims  against the Icelandic bank Kaupthing.  The entrepreneurs lost a substantial part of their wealth when the bank suddenly collapsed in October 2008.

In summer 2008 Robert Tchenguiz, one of the UK’s major investors, whose business was controlled by British Virgin Islands- and Cayman Islands-registered family trusts, had borrowed €1.7 billion from the bank, while his brother’s loans in the bank amounted to €208.7 million. Robert  Tchenguiz also was on the board of an investment company Exista, which was one of the bank’s largest shareholders. Then, the bank’s winding-up committee sued one of companies linked to the businessman for an unpaid overdraft of £643 million, and also attempted to seize proceeds from its sale of stake in the supermarket Somerfield. Also, due to the bank’s efforts Robert Tchenguiz was forced to sell his positions in the pubs group Mitchells & Butlers and the supermarket chain J Sainsbury, and lost hundreds of millions of pounds.

Now, probably as an answer to the bank, two offshore companies linked to the brothers – British Virgin Islands-registered Euro Investments Overseas, and Investec Trust, based in Guernsey, have submitted separate claims against the bank saying they are creditors, and the bank owes them money.  The claim of Vincent Tchenguiz amounting to £1.65bn, and the claim of Robert Tchuenguiz (£650m) together make more than 5 per cent of the total submissions to the bank.

The claims of the brothers probably will be contested by the bank’s winding-up committee but their validity is not likely to be examined until after creditor’s meeting which is planned on this week. If the claims are not successful, the BVI and Guernsey companies could challenge the decision in the court, or sue the bank in a separate legal challenge.

The exact details of the claims are not known, it is suggested only that they could be based on allegations that there were serious problems at the Icelandic bank before it failed. They said that this invalidated their contracts ad caused them financial damage (consequential loss).

Corporate regulators appointed a trustee for an Australian-based Trio Capital Limited, believing US$47 million of its assets have been invested in a company registered in the British Virgin Islands. It is advised by the new trustee to make assessment of the assets of the superannuation entities, providing the authority with a plan regarding their management.

In December 2009, the Australian Prudential Regulation Authority suspended Trio Capital Limited as trustee of its funds and one trust. At the same time, the ASIC withdrew company’s licence to operate its 24 managed investment schemes, including its main vehicle, Astarra Strategic Funds. The reason for this, according to the authority, became the breach of the company’s licence conditions and failure to satisfy concerns regarding the valuation of assets.

According to the new trustee, US$70 million of $300 million of Trio’s total assets had been invested in Astarra Strategic Funds. The accounting group PPB as the firm’s administrator is investigating Trio Capital’s managed investment schemes.

The four main superannuation entities – Astarra Superannuation Plan, Astarra Personal Pension Plan, My Retirement Plan, the Employers Federation of NSW Superannuation Plan – are said to have about 10,000 members, and at the end of September 2009 they reported assets of US$300 million. These funds have made significant investments in the Astarra Strategic Fund.

Ali Al Faraj, the owner of the Portsmouth club affected by crisis, had cancelled his plans to appear in the UK for the first time since the takeover which took place in October 2009.

The Portsmouth club is challenging the winding-up order served on it by HM Revenue and Customs in the end of December, and now is to argue in a High Court battle that the VAT portion of their massive tax debt is too high by ?7.5 million. In case the club wins, it will receive ?500,000 from the tax services, and not pay more taxes.

However, if they lose the case, the winding-up petition will be heard on February 10. It became known that Al Faraj and the British Virgin Islands-registered company Falcondrone, through which he bought a controlling 90% stake of the club, did not have the resources to save the club on their own.

The day after completion of his takeover through the BVI company, the club mortgaged Fratton Park from another BVI company, controlled by Hong Kong-based businessman Balram Chainrai, in return for a ?17million loan from Portpin. It was revealed by media that previous month he together with his business partner successfully sued Arkadi Gaydamak, father of former Pompey owner, for ?16.5 million, and had been part of the Al Faraj consortium only for Gaydamak Jnr to sell to Al Fahim.

So, almost everyone who has come out of the woodwork has a link to, and in most cases brought a legal case against Gaydamak Snr. The motives and ambitions of everyone involved in the case are not clear. Both HMRC and Portsmouth refused to comment the situation.

The Australian company Trio Capital, whose hedge fund known as Astarra Strategic Fund made $118 million investments through the British Virgin Islands-registered company EMA International, could not provide detailed information about the assets repatriated to overseas hedge funds.

By words of Neil Singleton, an executive with the administrators PPB (appointed by Trio’s directors after regulators froze their funds in October 2009), there was lack of information about BVI company’s assets.

Information provided by Trio Capital shows that more than $233 million of investors’ money is placed within the managed investment schemes, including the BVI company - more than $100 million more than ASIC’s initial estimates of $126 million. Also, PPB investigators found high level of inter-related investments between the schemes.

Astarra Asset Management was the investment manager to Astarra Strategic Fund. Its creditors include Trio Capital, with a loan document stating Trio Capital is owed up to $1.5 million under a complex arrangement with Astarra Asset Management.

The Australian Securities and Investments Commission revoked Trio’s licence to operate its 24 managed investment schemes. Some days after that, a liquidator was appointed to Astarra Asset Management after a meeting passed special resolution citing a “voluntary winding-up by creditors”.

The Australian Prudential Regulation Authority appointed a trustee to manage the $300 million the company holds in its funds, and stopped it receiving further cash inflows.

Shareholders of the Australian-based exploration company Midwinter Resources have called a meeting which will take place next month and during which former company’s chairman Jonathan O’Callaghan - now the non-executive director - will be probably ousted from the board. This decision of shareholders who collectively hold more than 25 per cent of the votes became the result of a conflict between Mr O’Callaghan and other directors over company’s plans to acquire a Russian coal mine.

In October 2009, Midwinter entered a memorandum of understanding with the purpose to acquire majority interest in a large coal project in Russia. However, after having reviewed the project and the structure of the proposed transaction, the company decided not to proceed with the opportunity. Immediately upon this, Midwinter received notice from the British Virgin Islands company Skala Ltd that it intended to make a proportional takeover offer at 12 cents per share. Skala’s associated company Redmet Ltd was to be the vendor of the Russian project, and Mr. O’Callaghan had disclosed to the board that he had material interest in this company.

The directors of the Australian company have concluded that the offer of the BVI-registered Skala Ltd is highly conditional and uncertain. They also noted that Midwinter has a strong cash position which equates to a cash backing of 16.5 cents per share. The board resumed that the BVI company made an attempt to gain control of Midwinter and later to cause it to continue with the transaction and to acquire the Russian coal project.

FGX International Holdings Limited, located on the British Virgin Islands, is subject to investigation which was commenced in connection with potential breaches of fiduciary duty and other violations of state law by the Board of Directors of the company. The investigation was initiated by the current shareholders of the BVI holding, who purchased the FGXI shares before December 16, 2009, over the attempt of the Board of Directors to sell FGX International to the French subsidiary of Essilor International.

On December 16, FGX International announced that it has signed a definitive agreement to merge with a subsidiary of Essilor International, under the terms of which BVI holding’s shareholders would receive $19.75 per share in cash, for an aggregate value of approximately $565 million, including the assumption of FGX debt of $100 million. The agreement includes termination fee of approximately $18.3 million. Upon completion of the merger, FGX International would become a wholly owned subsidiary of Essilor.

According to the investigation by a law firm,  this transaction is unfair to current investors of the BVI holding, and “the offer to purchase FGX International Holdings Limited appears opportunistically timed to take advantage of the current economic downturn”. The matter is whether the Board of Directors of the company broke their fiduciary duty to FGXI shareholders by agreeing to sell it at an unfair price thereby “harming FGX International Holdings Limited and its shareholders”, and whether, pursuant to this proposed transaction, the subsidiary of Essilor International may be underpaying for the BVI company.

According to FGX, the Boards of Directors of both companies have approved the merger agreement, and principal shareholders have agreed to vote their shares in favor of the transaction.

The Florida Office of Insurance Regulation issued a cease and desist order to American Assurance Underwriters Group and its affiliates, Worldwide Expatriate Administrators LLC and Worldwide Expatriate Advisors LLC, which are selling health insurance in Florida. The State insurance regulators determined the companies marketed and sold health insurance that was underwritten by AAUG Insurance Co. Ltd. without a license.

AAUG Insurance Company Ltd. is a captive insurance company licensed by the British Virgin Islands and, by words of officials, it does not hold a certificate of authority from the Office of Insurance Regulation.

BVI company and its affiliates have 21 days to challenge the action. AAUG’s executive Roy Alvarado said that they did not receive the order and would not comment until they receive and analyze it.

In September 2009, AAUG’s president Mr. Gregory spoke at a conference about the licensing issues and other regulations associated with global health insurance products in Orlando, Florida.

The British government is asked to investigate the collapse of the Edinburgh-based airline Flyglobespan. The claim of Scotland’s first minister Alex Salmond came after the failure of a Hertfordshire-based holiday company Allbury Travel Group, which has close links to E-Clear, the card payments group accused of hastening the collapse of Flyglobespan.

Allbury Travel Group, which is controlled by the British Virgin Islands company Allbury Ltd., and trades as Libra Holidays, Argo Holidays and Jetlife, went into administration in the end of last week. Elias Elia, chief executive of E-Clear, is named as the person controlling BVI-registered Allbury Ltd. He is also in the group of investors behind Jersey-based Halcyon Investments which had been negotiating to invest in Flyglobespan’s parent company Globespan. When it became clear that investment was not forthcoming, Flyglobespan ’s directors called in the administrators.

According to Scotland’s finance secretary John Swinney, £20m out of £35m collected by E-Clear on behalf of the airline should have been in Globespan’s bank account. He told that the Scotland’s airline would have had “a better chance of survival” if the money had been passed on. A spokesman for E-Clear denied the group’s responsibility for the collapse of the airline. Mr. Salmond said that there was a case for a serious investigation by UK government regulators, who should look at “the negotiations and the financial structure of Globespan.”

Allbury Travel Group operated air package holidays and flights out of Gatwick, Manchester, Newcastle, Birmingham and Leeds airports to Greece, Cyprus and Egypt. Now the Civil Aviation Authority is making arrangements for company’s customers which are now abroad to complete their holidays and return home, and to provide refund for forward bookings under its Air Travel Organisers’ Licensing scheme.