BVI Offshore Business: Grey Area

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.

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.

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.

The purchase of Notts County football club by Munto Finance Limited, which is incorporated in the British Virgin Islands and owned by the Middle East businessmen, is investigated by the Football League two months after the deal was completed.

The investors have handed information about their takeover to the League officials, in accordance with the rules, but people from the fottball league consider the information from Notts County had arrived too slowly. Now the Football League is making the analysis of information given by Notts County and making further inquiries.

It is still unknown who are the real investors and the owners of the BVI company who purchased the Notts County. In the course of takeover, the supporters’ trust agreed to “gift” its shares to Munto Finance, which informed about its plans to make significant investments to the club. After the football club’s takeover by Munto Finance, a high-profile manager Sven-Goran Eriksson was appointed to the post of its director.

BVI-registered Munto is a subsidiary of Qadbak Investments, which is the new owner of the BMW Sauber Formula One team. BMW described the company as a Swiss-based entity representing “the interests of certain Middle East and European-based families.” The directors of the BVI company are the executive chairman Peter Trembling and Peter Willett, who is linked to a Dubai investment group.

Actually, Notts County is the oldest professional football club in the world which has stuck in the second league for several seasons.

The shareholders of St. Petersburg retail chain Lenta August Meyer and Oleg Zherebtsov continue emotional discussions and mutual accusations, trying to force each other out from company’s management. By words of an American shareholder, the subject of conflict and disagreement is about the illegal takeover of Lenta LLC by two of the main shareholders - Oleg Zherebtsov and Vladimir Senkin. Lenta LLC, the retail chain that operates 26 hypermarkets across Russia, is fully owned by Lenta Ltd., registered in the British Virgin Islands, and its takeover was not approved by the majority of BVI company’s board of directors and, actually, by any other Lenta shareholders.

The conflict arose from the dismissal of Lenta LLC’s general director Sergei Yushchenko. After his contract expired, the majority of members of the board voted to appoint Vladimir Senkin to the position of general director. Senkin was proposed by Oleg Zherebtsov, the founder of Lenta who holds 35% stake. Meyer, who is the owner of 36%.4 stake, opposed the decision and held an extraordinary meeting of Lenta Ltd.’s shareholders where elected a new board of directors and voted to retain Yuschenko as general director of Lenta LLC and CEO of the BVI company.

Zherebtsov said that Meyer demanded his resignation from the position of general director of Lenta LLC at the end of 2006, and after this was done he demanded his resignation from the position of chairman of Lenta Ltd. and the sale of his shares, but this was refused. After the refusal of Zherebtsov, Meyer and Yuschenko tried to sell the BVI company to an outside investor, probably to another Russian retail chain.

Alexander Arbouzov, lawyer at Beiten Burkhardt St.Petersburg, indicated that if Lenta Ltd. owns 100% of the shares of Lenta LLC, the board of directors of Lenta LLC should be elected on the BVI where the parent company is incorporated by its shareholders. He could not conclude that one of the shareholders is trying to take over the company. Probably the dispute will be solved with the BVI court.