BVI Offshore Business: Grey Area

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 Florida Office of Insurance Regulation issued a cease and desist order to American Assurance Underwriters Group and its affiliates, Worldwide Expatriate Administrators LLC and Worldwide Expatriate Advisors LLC, which are selling health insurance in Florida. The State insurance regulators determined the companies marketed and sold health insurance that was underwritten by AAUG Insurance Co. Ltd. without a license.

AAUG Insurance Company Ltd. is a captive insurance company licensed by the British Virgin Islands and, by words of officials, it does not hold a certificate of authority from the Office of Insurance Regulation.

BVI company and its affiliates have 21 days to challenge the action. AAUG’s executive Roy Alvarado said that they did not receive the order and would not comment until they receive and analyze it.

In September 2009, AAUG’s president Mr. Gregory spoke at a conference about the licensing issues and other regulations associated with global health insurance products in Orlando, Florida.

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.

The Kyivenergo power distribution company has paid a UAH 170 mln gas debt to the Gaz Ukrainy gas company, clearing its debt for the natural gas it used for generating electricity in November 2009.

Kyivenergo is a joint-stock company 50% plus one share of which are owned by the state of Ukraine (this stake is contributed to the statutory capital of the national joint-stock entity the Energy Company of Ukraine), 20.35% are owned by Kapiton Trading Limited (Cyprus) and 15.72% are owned by the British Virgin Islands company Bledsoe Holdings Limited. The Haz Ukrainy actually is a subsidiary of the National joint-stock company Naftogaz of Ukraine.

The amount of debt paid by Kyivenergo for the previous periods is UAH 5 million. In the statement of company’s financial director, it is said that the situation with payments for fuel used for getting thermal energy is still complicated, as Kyivenergo cannot settle it in full amount.

According to the information from Gaz Ukrainy, as of December 9, 2009 the power company owed UAH 865 mln for gas supplied to it since last year. By earlier information of Ukrainian News, Kyivenergo paid Gaz Ukrainy debts in the amount of UAH 130 mln on October 14, and UAH 157.4 million on October 30.

K1 Invest Ltd., the British Virgin Islands-based hedge fund operated by German K1 group - one of the two BVI hedge funds believed to be used in a network of investment firms to transfer the money received from reputable banks, - is to be liquidated after its assets were frozen.

This information was provided by the fund’s director who said in a letter to distributors that the BVI fund has hired accountancy firm Grant Thornton to liquidate it. The freezing of assets and the resulting inability to pay its obligations have led K1 Invest to voluntary liquidation “in the best interest of the company and the investors.”

K1 Invest Ltd. is managed by K1 Group’s founder Helmut Kiener who is now suspected of committing fraud and breach of trust. Kiener now remains in jail, although his diplomatic status would provide him with immunity.

In 2004, German regulator BaFin tried to ban K1 Invest Ltd from operating in Germany.