BVI Offshore Business: Grey Area

The credit card processing firm E-Clear, whose chief executive Elias Elia was named as the person controlling BVI-registered company Allbury Ltd., collapsed a month after the collapse of Flyglobespan, after it was pursued through the courts by PricewaterhouseCoopers administrators.

Mr. Elias, who actually is at the heart of controversy surrounding the collapse of Globespan airlines, has claimed that E-Clear owes him £25m. The firm also faced a bill for up to £35m from Globespan administrators PWC, and bills from a number of other creditors. PWC blamed most of Globespan’s demise on an alleged failure by E-Clear to pass on this sum which was taken from the airline’s customers.

Globespan’s financial position worsening, Elia had agreed companies linked to him would make a rescue investment, subject to regulatory approval, but no funds were actually invested. In the beginning of the year, the information was revealed that the Serious Fraud Office had started gathering materials on E-Clear, without formal investigation. Elia had denied any problems.

A sworn statement of affairs document, produced by Elia for E-Clear’s appointed administrators, claims the firm had assets with a book value of £46.7m, but concedes few of them can be realised for unsecured creditors. The multimillion-pound interest in Allbury Travel Group, a Hertfordshire travel agency controlled by Elia through  British Virgin Islands company Allbury Ltd., is among the assets listed by Elia. Allbury collapsed in January 2010, leaving creditors without possibility to recover any part of assets.

Upon investigation made into the network of BAE Systems companies, the U.S. State Department has placed a “temporary administrative hold” on weapons export licenses of BAE Systems or companies using BAE Systems’ products. This came when the BAE pleaded guilty on March 1 to accusations that it conspired to defraud the U.S., and agreed to pay a $400 million fine in a complicated case involving allegations of mysterious payments paid to a Saudi Arabian official, offshore “shell companies”(including BVI companies) set up by BAE to get weapons contracts, and providing false information about this to the U.S. government.

According to the Justice Department, the company paid 135 million pounds and more than $14 million to a shell company registered in the British Virgin Islands, “even though in some situations the company was aware there was a high probability that part of the payments would be used to ensure that BAE was favored in foreign government decisions regarding the purchase of defense articles.”Also, according to the U.S. arms trade experts, the BAE payments apparently undermined the competitive ability of U.S. companies.

Justice Department lawyers said that none of the company’s criminal conduct involved BAE Systems Inc., which is the U.S. division of the defense company. However, the temporary hold applies both to BAE Systems, Inc. and to BAE Systems PLC, while the department studies the guilty plea and determines whether additional action should be taken against the company.

The Saudi property tycoon Ali Al Faraj, who bought  a controlling stake of the Portsmouth club through the BVI-registered company Falcondrone Ltd, and was found not to have enough resources to rescue the club, now was forced to hand over the ownership after defaulting on loans owed to HK-based businessman on February 4.

Balram Chainrai had exercised a clause in a loan agreement with Arab businessman that in case of not timely payment he would take over Al-Faraj’s 90 per cent ownership of the Portsmouth. However, his takeover may be challenged by the British lawyer Mark Jacob, appointed to the board by Al-Faraj, who argues that neither party complied with the loan agreement.

By words of Chainrai, he is exercising the loan agreement to secure the future of the club and “to stop people who are recklessly trying to ruin the club”. He said that he was looking for a new investor to take over the club, to support and develop the club.

The club itself confirmed the change of ownership. In the club statement it is said that the security arrangement with the BVI company was based on documents drawn up by law firm, owned by Jacob, as part of the original draw down of the loan, depositing with Mr. Chanrai the original share certificate and a signed share transfer with open date in favor of Mr. Chanrai, which could be dated and exercised in the event of default on the terms of the loan agreement.

The ARP Growth Fund, managed by Trio Capital Limited, has invested $52 million through the British Virgin Islands in a fund of hedge funds. Trio Capital’s administrators (the accounting group PPB), which are investigating company’s managed investment schemes, were not able to establish the value of this investment. The investment vehicle of the fund, Professional Pensions ARP Ltd, which is also based in the British Virgin Islands, uses a HK-based Empyreal Holdings as its investment manager.

Earlier, administrators and regulators could not find out details about $118 million investments made by another Trio Capital managed fund, Astarra Strategic, through another British Virgin Islands-registered company EMA International.

There is the uncertainty with the major investment of ARP Growth Fund because of negotiations on a confidentiality agreement requested by the BVI-registered Professional Pensions ARP. Even once the existence of the assets is established, it is very difficult to value investments in hedge funds including the Denholm Hall Russia Arbitrage Fund Class A, the Alpstar Secured Bank Loan Fund and the Fairfield Ludgate Hill Asian Arbitrage Fund.

Professional Pensions has applied for BVI approval for winding up the fund, raising the prospect of hard-to sell hedge fund assets being sold at discount. By words of Philip York, a director of Empyreal Holdings, the money, which was invested in a series of hedge funds, was now held by JPMorgan due to  its takeover of Bear Stearns, - the company which in 2005 entered an agreement with Professional Pensions Fund. This agreement was known as a “total return swap”, under which the investors benefit from a “synthetic” exposure to a basket of hedge funds while JPMorgan holds the assets. Mr. York also said they had provided to ASIC all the information supporting the existence of those assets, and also that they have provided PPB with all the documents they have in relation to the valuations and shareholdings.

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.

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 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.

The director of Firepower Operations Pty Ltd, who also took the positions of the director and executive chairman of its parent company Firepower BVI, is giving his evidence at the liquidators’ hearing of the Firepower’s case.

The Federal Court examination of the collapse of Firepower, which raised about $100 million from its shareholders, continues and includes more and more details. Mr Johnston did not specify any reasons why he agreed to increase a multi-million dollar 2007 Supreme Court settlement by $2 million and millions of shares following a dispute with the former chief executive of Firepower Trevor Nairn and his wife Rhonda. The Perth court was told that the original deed of settlement had given $1.5 million in 2007, and one million shares of Mrs. Nairn.  Mr Nairn’s company Bikpela Investments received another $2.5 million and 19 million shares.  So, by February 2009 the settlement made $3 million and 7,425,000 shares for Ms Nairn and $3 million and 18 million shares for his company.

Mr. Nairns and his wife had an interest in the Cayman Islands-based Firepower Holdings Group, from which Mr Johnston transferred intellectual property rights for Firepower products. The transfer followed the setting up of another Firepower umbrella company in the British Virgin Islands, Firepower Holdings Group Ltd. 

During the liquidators’ hearing, ex-director of the company did not reveal information about how the operations between his own company, Firepower Operations, and the BVI- and CI-based companies were coordinated. Mr. Johnston has claimed that in 2006 and 2007 he gave $11 million to Owston Nominees, the company of Warren Anderson, saying that he was under threat from Mr. Anderson. The property developer Warren Anderson was the previous director of the BVI-registered holding of Firepower Holdings Group Limited. Now he is alleged by Mr. Johnston of intimidating him.

Lawyers for the liquidator agreed to Mr. Johnston writing the names down to avoid them becoming public. Richard Douglas, the barrister for the liquidator, asked for the allegations in writing. Mr. Johston said he would not object to make the names public.