DOUGLAS SHEPHERD with the second chapter on the great Eco Resources failure
A damning report from the provisional liquidator of the Premier Eco Resources Fund [ERF] gives details of the complicated structures and flawed decisions which led to the collapse of the company, leaving investors, shareholders and creditors out of pocket by many millions of dollars.
In part one of the story we revealed the problems directly associated with a vote taken in December not to liquidate the ERF, which claimed to be investing in bamboo plantations in Nicaragua and South Africa, and the insolvency expert's assertion that the result may not have been legitimate.
But the liquidation process is underway after an Isle of Man judge rejected arguments that the fund should not be dissolved.
ERF has close associations with another Premier Group business, New Earth Recycling & Renewables [Infrastructure] Fund [NERR] which will be familiar to taxpayers in the Scottish Borders. NERR is also in the hands of liquidators who are investigating the reasons for its costly collapse.
Gordon Wilson, the ERF liquidator says: "Whilst we have not as yet made a final determination of the reasons for the fund's failure, mainly because there are still some fundamental uncertainties about exactly what has occurred, we have reached some preliminary findings and conclusions.
"In our first report as controller in August 2016 we said 'it is apparent to us that the three principal companies involved have been in difficulties for well over a year. They are all, in our considered view, insolvent and most likely have been insolvent for some time'.
"The financial difficulties can, in our view, be directly attributed to the decisions taken early in the life of this structure, in particular to give special redemption terms to the shareholder vehicles linked to Mr [Troy] Wiseman which saw them redeem over half their shares in cash".
Mr Wiseman, an American businessman and entrepreneur, is the main figure in the EcoPlanet Bamboo Group set-up which manages the plantations.
The report goes on: "In addition, the financial difficulties were compounded by an apparent under-regard for the longer term financial consequences on the investment strategy of paying that redemption cash out of the structure".
There is also evidence that the later acquisitions of plantations in late 2013 were intended to bulk up the assets of the fund so that it would be of a size which would attract more new investors "with apparent under-regard for the related risks and cash flow needs of the additional assets.
"The result for the majority of those 180 or so people who subscribed cash is that they now have an investment which, if it ever pays them any cash back, will be unlikely to do so until the mid-2020s. Overall we feel that the investors have been significantly let down".
Mr Wilson's report concludes that the fund's failure was principally due to:
*A collective failure to objectively manage the plantation assets due to a combination of over reliance on Eco Bamboo Group and Mr Wiseman, to Mr Wiseman's degree of control over Eco Bamboo Isle of Man and failures to avoid conflicts of interest.
*An overly complex structure with a catastrophic mismatch between liquidity terms offered to investors versus the liquidity associated with the underlying asset class.
*Restrictions on information flows and their subsequent impact on objective decision making.
*Financial mismanagement, in particular the consequences of the redemptions paid to Eco Bamboo Group.
"These failures were then compounded by Mr [Michael] Richardson (a director of Premier Group Isle of Man, now in liquidation) and Mr Wiseman becoming personally invested in SAL (Sustainable Asset Lending, a US-based finance company which, appears to own the plantations) and the resultant conflict of interest which that caused them both".
FURTHER COVERAGE OF THE SAGA TO FOLLOW....