BVI Offshore Business: Grey Area

The U.S. oil and gas company JMG Exploration, Inc. announced that Newco Group Ltd., incorporated under the laws of the British Virgin Islands, has failed to repay a US$3mln loan and accrued interest and fees that was due in July 2008. As a consequence of this, JMG issued a formal notice of default on July 22.

The BVI company is given 15 days to transfer the shares of Iris Computers Ltd, which collaterized this loan into the name of JMG, unless an alternative settlement arrangement is consummated by August 1, 2008, or a default is cured prior to that date.

The Nevada-registered JMG Exploration, Inc. reported the termination of the share exchange with BVI-registered Newco Group Ltd. already in February this year. Later on, JMG Exploration updated status of defaulted loan to the BVI company.

Last week the court in Khanty-Mansiysk, Russia, issued a verdict on the lawsuit filed by BVI-registered Farimex Products against a Norwegian telecoms company Telenor. The judge decided that Telenor is liable for USD 2,824,125,677 in damages plus RUR 460,000 in costs, for having delayed the acquisition of Ukrainian Radio Systems by VimpelCom, partially controlled by Farimex.

Farimex filed the lawsuit worth US$3.8 billion in the Russian regional court, while it says that current market value of VimpelCom’s voting shares it owns is about $US600,000. On August 8, the BVI company even increased the amount of its claim to just over US$5.7 billion, claiming that Telenor delayed VimpelCom’s $US230mln purchase of the small Ukrainian mobile operator by nearly one year.

Telenor is sure in its final victory and reversing the decision on appeal. Telenor’s Executive Jan Edvard Thygesen in his comment on the court’s decision noted numerous procedural irregularities in the case. He also said that Norvegian company strongly believes that BVI-domiciled Farimex is affiliated with the Alfa Group, and tha they will use all possible legal remedies to change this decision in the higher courts. By his words, they are confident to prevail on appeal, because in other cases involving Alfa, higher courts of Russia “have overturned spurious rulings originating in regional courts.”

Alfa Group already participated in a number of collusive lawsuits, and in this case number of Alfa entities were also named as defendants – including those four which have no connection to VimpelCom. It was ruled by the court that none of these defendants had any liability, and held that Telenor was the only entity liable for the damages of the BVI  company. However one of those defendants has its registered office in Khanty-Mansiysk, which also became the basis for Farimex to bring the case in this city.

The damages should be paid to VimpelCom, which has not participated in the case and was named just as a third party in the complaint of Farimex. In its turn, Telenor is the owner of 33.6 per cent of VimpelCom’s shares of common stock and 29.9 per cent of VimpelCom’s voting capital stock.

This year July, the Ukrainian prime minister Yuliya Tymoshenko made efforts to stop what she called the shadowy privatization of the Odessa-Brody oil pipeline (OBP), from Ukraine’s Black Sea coast to country’s border with Poland, based on the fact that corruption and political problems in Ukraine are to choke off the expansion of oil exports from Azerbaijan and Kazakhstan to Europe. Her promise at a July 30 press conference to halt the “shadowy privatization  of the oil pipeline through offshore companies” was referred to the British Virgin Islands company Milbert Ventures, which is linked to the Pryvat Group headquartered in the Ukraine city of Dnipropetrovsk, and headed by Ukrainian tycoon Ihor Kolomoysky.

The contracts with these companies were prepared by the office of Ukrainian President Viktor Yuschenko. Now Tymoshenko alleges that these contracts would give to the BVI company the authority to decide unilaterally on the direction of the oil running through the pipeline, and to extend the term of the contract, while not providing any guarantee that oil would ever actually fill the pipeline in any direction.

By words of Tymoshenko, these attempts to register Odessa-Brody pipeline in offshore zones like BVI, sell technical oil that goes through this pipeline, and leave Ukraine with nothing are to fail.  In her opinion, this is the corruption scheme that would have given the Odessa-Brody pipeline over to Pryvat Group via Milbert Ventures, for closing it down after making it empty.

Bohdan Sokolovsky, Yuschenko’s representative for international energy affairs, contests the allegation, identifying two refineries in western Ukraine controlled by BVI-linked Pryvat group that were to have been destinations for contracted Caspian oil from Azerbaijan. Last month, Yuschenko agreed with the President of Azerbaijan Ilham Aliev to fill the OBP with technical oil for testing, to put it into operation later on.

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.