BVI Offshore Business: Grey Area

The process of liquidation and recovery of fees to investors into the BVI-registered Kingate Global Fund Limited and Kingate Euro Fund Limited, which are sued as the funds linked to Madoff Investment Securities LLC, may cause even more problems than it was expected. The dispute between the court-appointed trustee for the liquidation of Madoff’s fund Mr. Irving Picard and the liquidator of the BVI funds Zolfo Cooper may become the reason for the delay of payouts to Madoff investors, and could result in solving the dispute in BVI court.

Last week, Picard had approved payments of $534 million to victims of Madoff’s $65 billion fraud, while there is $4.44 billion in claims that he has deemed valid so far. According to the documents, Picard had claimed about $870 million from the two Kingate funds, including more than $600 million sum that was paid in commissions to the BVI funds by Madoff Investment Securities during the six years to December 2008.

Zolfo Cooper is asking Kingate shareholders to approve a deal in which they would pay the trustee 50 per cent of Kingate’s current assets. The BVI funds would also pay 50 per cent of any additional recoveries to Madoff’s company, and the investors would be allowed full claims in its liquidation. Some investors are not satisfied with this distribution and want to receive any recovered management and performance fees that were paid to Kingate. However, Zolfo Cooper claims that the only alternative to the settlement would be lengthy and costly litigation, because Picard could ask the courts in BVI (where the funds are registered) and in Bermuda (the domicile of the asset manager Kingate Management Ltd) to give him control of any funds recovered there.

Picard is also involved in lawsuits with the liquidators of several other feeder funds in the U.S. and other countries, while Zolfo Cooper has to deal with the claims from  those who subscribed to invest in the Kingate funds after December 2008. Their money (about $12 million only for one of the funds) was never invested, but still it was in the Bank of Bermuda, when Madoff collapsed. In August 2009, the Supreme Court of Bermuda ordered Kingate Global to repay $6 million and $3 million to Knightsbridge Fund Limited and Standard Chartered Bank. This ruling could become a precedent for the return of the rest of money invested after December 2008, but the decision was appealed by the liquidator.

Bryan Hughes, the liquidator of the failed fuel technology company Firepower Operations Pty Ltd, an Australian branch of the BVI-registered Firepower Holdings Group Ltd., has called an informal meeting of shareholders to look into suggestions that company’s previous directors are spending BVI group’s money, setting up a new company called Greenpower. He said he had seen documents showing  that money was transferred to a new business as late as July. The liquidator is not sure about the jurisdiction they have registered in, but he has information that they have been operating out of London, making efforts to acquire  the stock of Firepower.

At meetings across Australia, Mr. Hughes told that Firepower shareholders would get no return on the millions of dollars they invested into the fuel technology company without taking legal action. By his words, Firepower’s secret accounts showed losses of over $40 million in the past three years. Also, Mr. Hughes had information that there were offshore bank accounts containing significant amounts, and the BVI group itself had no assets and no patents; he said at the meeting that about $80 million to $100 million had been invested in Firepower, but much of the money “had gone straight to other companies through a complex offshore web.”

The company Firepower Operations is to be liquidated with debts of almost $10 million, and corporate regulators from the Australian Securities and Investments Commission are taking new steps against the BVI company and its associated companies.

Firepower has about 1,200 shareholders who have invested up to $100 million. The company owes millions of dollars to creditors, including the Western Force rugby team and Sydney Kings basketball team. Mr Hughes is the official liquidator of the Firepower Group’s British Virgin Islands-based parent company, and he is seeking to have Firepower BVI wound up. Tim Johnston, the sole director of the Australian-based Firepower Operations, who was also the director and executive chairman of the parent company Firepower BVI, could not be reached for comments.

Mr Hughes revealed at the meeting that he would consider actions against Mr Johnston for insolvent trading, and that, by his expectations, there would be petitions for his bankruptcy.

Perth-based Firepower Operations Pty Ltd, an Australian arm of the BVI-registered Firepower Holdings Group Ltd., is already involved in the long-lasting conflict with an international auditing firm KPMG, which refused to deal with this company. Now the company is to be liquidated with debts of almost $10 million, and corporate regulators from ASIC have taken another steps against the controversial BVI company. The Commission began action against the companies that sold $60 million of shares in Firepower Holdings Group without issuing proper documents. ASIC also wants Firepower chairman Mr Johnston to be banned from management.

ASIC confirmed it was investigating the BVI company, but the current action related only to associated companies and not the Australian company Firepower Australia Pacific. The associated companies named are Owston Nominees Pty Ltd, Sattvic Pty Ltd, Seaswan Holdings Pty Ltd, Axis International Management Pty Ltd and its director Quentin Ward and Malaysian-incorporated Firepower Investments Pte Ltd.

Firepower’s small investors will have no claim on the Australian assets of the company, because the company which they invested in represents the BVI-registered parent company, and not Firepower Operations.

The missing owners of a share trading company Chartwell Enterprises, which after its collapse owes millions of dollars to its staff and investors and is currently investigated by the Australian Securities and Investments Commission, now are discovered to have a company operating in the British Virgin Islands.

According to some documents, last year Ian Rau and Graeme Hoy negotiated through the Maltese Bank of Valetta to create the offshore company Blenheim House Investments (BVI) Ltd.

Blenheim House also holds all 10 shares in a holding company registered under the name of Delaware Corporation, of which Mr Hoy and Mr Rau are listed as sole directors.

Company search of Delaware showed an address in suburban East Geelong as the company’s place of business, but when it was visited by the press representatives, it was founded to be owned by a middle-aged couple for the past 35 years which did not know anything about the company’s owners.

On April 23, it was reported that there are documents, now handed to Australian Securities and Investments Commission, where it is suggested that Mr Hoy was sending millions of dollars offshore before the collapse of Chartwell Enterprises. The documents prove that Mr Hoy had established companies overseas and had channelled millions of dollars into them, and included papers referring to overseas tax havens, regular payments to and from a Vanuatu investment firm including one $9 million transaction, and Blenheim House Investments Ltd, registered in the British Virgin Islands and led by Graeme Hoy.

Also, it became known that Blenheim House operated out of the registered offices of offshore business consultants Intershore Consult. The attempts to contact Graeme Hoy and Ian Rau, as well as Intershore, have failed.

The proceeding on the bankruptcy of late stockbroker Rene Rivkin, related to his affairs in the UK and BVI,  was started more than a year ago and is not over yet. Rivkin’s bankruptcy trustee, Anthony Warner of Sydney-based CRS Warner Kugel, planned to recover millions of dollars from Jersey bank account of the company called Thameslink, wholly owned by Rivkin and having BVI company called Derata as its sole director. In case of success, the funds were to be distributed to the creditors, including the Australian Taxation Office.

Now, the Royal Court of Jersey approved a claim of the trustee on the Thameslink, which has $2.7 million in its bank account in Jersey. Mr Warner confirmed that Jersey authorities would be releasing the $2.7 million Thameslink funds to the estate after declaring that Rivkin was the beneficial owner of the company – the fact Rivkin had previously denied. Also, Mr Warner said he would be given success to financial records of Thameslink, to examine them carefully and probably uncover new details of his Swiss bank accounts.

Rivkin’s estate was placed into bankruptcy last year, and his family co-operates with Mr Warner to recover funds believed to be held in offshore jurisdictions including BVI, by companies ultimately owned by Rivkin.

The adult magazines publishing group founded by Express owner Richard Desmond seeks a listing on the junior Plus Market, and if this will be provided it will be the first listing on the stock market for business working in the adult sphere. Interactive Publishing, a shell group, is floating after a reverse takeover deal with Trojan Publishing, a private business that has a large portfolio of top-shelf titles such as Asian Babes, Forty Plus and New Talent.

After Trojan Publishing Group bought rights to about 30 former Desmond titles last year, in June 2006 it acquired about a dozen mostly adult magazines from British Virgin Islands-registered AML Publishing Trust. Also, in 2006 Trojan signed a deal with Penthouse, licensing rights to Forum - another adult magazine.

A stock market listing for Desmond’s onetime porn titles comes two months after a bankruptcy order was made against Simon Robinson – a former Express journalist who had acquired the titles, trading as Remnant Media, from Desmond in 2004 for £10.8m. Remnant slipped into administration last year only to be snapped up by Trojan, a business at which Robinson had been a director until January 2007.

Some months ago, we have discussed the case of bankruptcy of deceased stockbroker Rene Rivkin, which was connected with his affairs in the UK and in the British Virgin Islands. The BVI company called Derata was named as the sole director of Jersey-based Thameslink wholly owned by Rivkin. Rivkin’s bankruptcy trustee planned to recover millions of dollars from Jersey bank account. In case of success, the funds were to be distributed to the creditors, the largest of which was the Australian Taxation Office.

Last week, the Swiss lawyer Benno Hafner, who represented Rene Rivkin, launched a legal bid to stop the investigation into Rivkin’s assets. He is believed to have the purpose to prevent Rivkin’s bankruptcy trustee from gaining access to bank records held by a British financial institution and related to Rivkin’s business deals.

The bankruptcy trustee Anthony Warner from Sydney-based CRS Warner Kugel, in his turn, is attempting to obtain the documents concerning Rivkin’s business interests in the jurisdictions other than Australia and Switzerland – that is the UK and the British Virgin Islands. In Federal Court proceedings in Australia, Mr Warner has already uncovered $3 million probably hidden in a Virgin Islands trust linked to Rivkin.

Rivkin’s estate was placed into bankruptcy last year, with $29 million owed to the tax office (later on the bill educed to $20 million). His family co-operates with Mr Warner to recover funds believed to be held in offshore jurisdictions including BVI, by companies ultimately owned by Rivkin.