BVI Offshore Business: Grey Area

Cool-er device of the British Virgin Islands-registered company Interead, which has received a winding up order a month ago by the high court in Liverpool, UK, is still sold by companies Argos and Tesco. The businessman behind the company Neil Jones is running Coolerbooks.com, which sells e-books from the Cool-er and other electronic readers, but is owned by a separate company, registered in the British Virgin Islands and called Interead.com. This firm was put into liquidation on June 8, however, the companies Argos and Tesco are continuing to sell the device, and the customers are not informed about the problems in the firm.

According to Argos, they took a commercial decision to phase out this product range, because they no longer have active working relationship with this supplier and were unaware of the suggested recent developments in this business.

The Guardian claims that the founder of the BVI company Neil Jones has “told friends he is the firm’s biggest creditor, claiming to have put about $1m (£660,000) into the business”.

Also, Interead has not filed any accounts and is being wound up following an outstanding claim from public relations advisers.

Jamoliddin Nuraliev, the Tajik government official and Son-In-Law of country’s president, has denied any ties to a British Virgin Islands-registered firm Innovative Road Solutions, which is operating the toll road on Dushanbe-Chanak highway, - one of the main roads in Tajikistan.  According to Deputy Finance Minister Nuraliev, they are not providing any funds for BVI company’s activities in Tajikistan.  He also said that a government commission recently audited the activities of the company and did not discover anything illegal about them.

At the same time, it is reported by media that Innovative Road Solutions was registered in the BVI by a person named Jamoliddin Nuraliev.

The head of Tajikistan’s Antimonopoly Committee Amonulloh Ashur, who had  already questioned company’s right to operate the only toll road in the country, said that the most important thing is that the company did not  coordinate its pricing policy with the Committee.

In the opinion of Tajik economists, company’s registration in the BVI makes it difficult to follow its activities. Also, for some reasons the company was exempted from paying more than a dozen different taxes.

Fuqi International, Inc., a Chinese designer of precious metal jewelry, selling a wide range of products in the Chinese luxury goods market, and having a British Virgin Islands-registered subsidiary Fuqi International Holdings Co., Ltd., has been filed additional lawsuit. Murray, Frank & Sailer LLP is now investigating federal securities claims against Fuqi International, on behalf of all investors who purchased Fuqi common stock in connection with the company’s second public offering on or about July 22, 2009 through early August 2009. In this offering, Fuqi International sold over 5 million shares at US$21.50 per share.

The  investigation concerns violations of certain sections under the Securities Act of 1933 through the issuance of materially false and misleading registration statements, prospectus, and other documents which failed to disclose that the company’s wholesale business was slowing. As a result of company’s actions, its financial statements were materially false and misleading at all relevant times.

Murray, Frank & Sailer LLP has already filed the class action against Fuqi International, Inc. in the US  District Court for the Southern District of New York, on behalf of all individuals and institutions who purchased publicly traded securities during the period between May 15, 2009 and March 16, 2010, alleging violations of the Securities Exchange Act of 1934.

The head of Tajikistan’s Antimonopoly Committee announced that the Innovative Road Solutions (IRS), incorporated in the British Virgin Islands, has no more right to operate the toll road on the 350-kilometer-long Dushanbe-Chanak highway. According to Amonulloh Ashur, the BVI company was permitted to operate the toll road at previously agreed prices for one month, in April, so its operation since May 1 is illegal. The agreement between the IRS and the government stated that after April the company had to co-ordinate its pricing policy with the Antimonopoly Committee.

Ashur said this was not done, and then the Committee sent a letter to IRS, the Communication and Transport Ministry, and the administration of one of the districts in Dushanbe to request that drivers not be charged for using any part of the highway.

Recently, the highway was upgraded for a US$280 million loan from China. The Tajik government announced that in order to repay the loan the highway would become a toll road.  In April, small cars and microbuses have paid about 7 cents for every kilometer of this highway, since May 1 they have started to pay three times less.  Nevertheless, drivers and those who had to use the road protest against the toll road, they have even sent a petition to the President of Tajikistan for its abolition.

It is considered by some analysts that the way in which the BVI company received the tender for work was not fair enough. However, Tajik Communication and Transport Minister rejected this. Technical Director of IRS said that no tender was held to gain the contract to operate the toll road, but the government of Tajikistan gave the concession to IRS and after several years the highway will be returned to the government.

Gulfside Minerals Ltd. has filed a writ in the District Court of Ulaanbaatar, Mongolia, to cancel the transfer of shares of  ECM LLC, the company holding the Erdenetsogt exploration License, to the British Virgin Islands company Mangreat Group Ltd. In this litigation, Gulfside is seeking to have ninety five percent of ECM now owned by the BVI-registered Mangreat Group returned to Mongolia and offered to Gulfside.

The complaint is based on the fact that Gulfside is a shareholder of ECM, holding 5 percent of its shares, and, under an Agreement of June 17, 2007, it has a right of first refusal to purchase any shares of the company offered for sale by other shareholders. Under an Agreement signed with Monrospromugoli LLC on June 17, 2007, Gulfside has been awarded 5% of ECM shares. In November 2007, the shares were transferred by MRPU for five million dollars, and Gulfside alleges that as a shareholder of ECM it had the right to buy these shares.

Once the court action is initiated, the BVI company will be invited to  the court proceedings as a Respondent.

Law Offices of Howard G. Smith, representing investors of Fuqi International, Inc., which is parent company of British Virgin Islands-registered Fuqi International Holdings Co., Ltd., has filed a class action lawsuit in the Court for the Southern District of New York on behalf of a class consisting of all persons or entities who purchased the securities of the company between May 15, 2009 and March 16, 2010. The complaint charges Fuqi and some of its executive officers with violations of federal securities laws. The defendants are also alleged of misrepresenting and/or failing to disclose material adverse facts concerning company’s business, operations and prospects  throughout the Class Period. As a result of this, company’s financial statements were materially false and misleading.

On March 16, 2010, Fuqi International disclosed that it had identified certain errors related to the accounting of company’s inventory and cost of sales, and the result of the accounting errors was expected to have a material impact on company’s previously issued financial statements for the first three quarters of 2009. In addition, the company announced that its financial statements for this period should no longer be relied upon, and it was intended to file amendments disclosing the effect of the accounting errors.

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.

The Supreme Court of Philippines in its resolution denied the P6.2-billion compromise agreement between government-owned Philippine National Construction Corporation (PNCC) and Radstock Securities, Ltd., a British Virgin Islands-registered firm with HK office address. Under the agreement, PNCC agreed to assign to the BVI company all its rights and interest over a 10-hectare prime property which has transfer value of only P3.82 billion, as well as other prime properties. Also, the agreement binds the PNCC to give up in favor of Radstock 50% of PNCC’s 6% share in the gross revenue of the Manila North Tollways Corporation, with net value of P1.2 billion, and to cede 20% of its outstanding capital stock with the assigned value of shares at P713 million to Radstock.

According to the ruling of the high court as of December 2009,  the contract violates the Section of the Constitution banning the release of public funds without a legislated appropriation. In the 90-page consolidated decision issued last year, the high court pointed out that the compromise agreement would have cost the Philippines government billions in terms of prime real estate properties.

Radstock Securities, Ltd. appealed to the high court saying that the PNCC was still a private corporation even if it was a government-owned or controlled. Radstock denied there was a violation of the constitutional ban. However, the high court threw out BVI company’s appeal, saying no arguments were raised that would warrant a reversal of its earlier decision of December 2009.

The credit obligation of PNCC was assigned on January 10, 2001 by Marubeni Corporation to Radstock, and after the due date demands for payment were made to PNCC by Marubeni and Radstock, PNCC failed and refused to pay the obligation. Then, Radstock filed suit against PNCC for the sum of money and damages.

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).

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.