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Tuesday, March 31, 2009

BrisConnections shaping up as a major embarassment for Anna Bligh's government ..

Wonate One wants the Victorian Supreme Court to order that a meeting of BrisConnections unitholders should go ahead on April 9 regardless of the outcome of the case between the toll road company and Mr Bolton.

The company, which is having part of its legal costs covered by Hugh McLernon's litigation funding company IMF under a pro-bono scheme, also wants an independent accountant appointed by the board to examine and report on BrisConnections' finances, so that unitholders can go into that meeting fully informed.

"It's highly likely the units have a negative value,'' Mr Sifris told the court.

"We submit that an independent party be appointed by the court to look at the debts, claims and liabilities of the responsible entity (BrisConnections).''

BrisConnections has begun construction of the biggest infrastructure project in the country, the $4.8 billion Airport Link project in Brisbane that already employs 1100 people. Such a report into its finances could find that the company is technically insolvent, especially if the next $1 per unit instalment is not paid.

Counsel for BrisConnections asked the court to strike out the application from Wonate One to join the proceedings.

After hearing both parties, Justice Ross Robson said the court `"guards jealously'' the rights of citizens who come before it to be heard.

"Mr Sifris contends that Wonate One seeks to be heard on behalf of mum-and-dad shareholders,'' Justice Robson said. "This court will not deny citizens that right.''

Wonate One will make its case on Thursday.

A separate trial, between Macquarie Group as plaintiff and BrisConnections and Australian Style as defendants, begins in Brisbane in the morning.

See - Sydney Morning Herald - BrisConn: mums and dads join the fight.


Anonymous newswatch said...

Sydney Morning Herald:

Bang on the ASX door - it does have a role in instalment mess

Elizabeth Knight

April 1, 2009

The thousands of shareholders facing potential bankruptcy when forced to stump up an additional $2 a share for BrisConnections should be banging on the door of the Australian Stock Exchange. It has failed them all, both in terms of disclosure and the provision of some mechanism to trade these securities.

This is the sharemarket equivalent of a lay-by - you put down a deposit and pay the rest in instalments. The difference is that you legally take ownership of the share when you make the downpayment and have the liability to pay the rest. You can't leave the goods at the shop if you can't pay off the rest.

These types of securities, called instalment receipts, have been used before - the best known example was Telstra. But they were issued in better sharemarkets than the one we are now in.

Instalment receipts can easily become toxic in a rapidly falling market.

When BrisConnections was floated, its shares were sold at a price of $3 - $1 down and the remainder to be paid in two $1 instalments.

BrisConnections has a value, but the first instalment is less than worthless - it's negative.

The trouble arises because the total value of this company is only about $1.33 per share - less than half of the $3 issue price.

The company's share price on the stock exchange is 0.1c - and there is a $2 liability attached to it. So its hardly surprising that anyone owning the stock does not want to pay the second and third instalments.

In theory, if an investor wanted to get rid of the potential liability he would need to pay the buyer 67c.

But there is no mechanism to trade stocks that have negative values on the ASX. There should be. Plenty of far more complex derivative products are traded on the exchange.

The ASX would argue that it is not its responsibility. However, it was happy enough to take the BrisConnections listing fees and a commission on the trades.

A contingency position that would allow some kind of trading of stocks that have instalment receipts is arguably its responsibility.

If an initial public offering sells shares with a $3 value ($1 upfront and $2 to pay) it is not that surprising that the price could fall below its initial instalment value. There are plenty of companies that have fallen by more than 50 per cent.

The ASX attitude is akin to all care and no responsibility.

And then there is the issue of disclosure. Sure there are some BrisConnections investors who knew what they were doing and took a punt. But there were plenty who bought in at 0.1c and were unaware that there was a liability attached. Many of these are said to have acquired their shares through online brokers like CommSec.

These will be unsophisticated investors who were not adequately warned about the liability attached to buying this apparently cheap stock.

Now they are in the position where they cannot sell their shares because clearly there are no buyers now that there has been sufficient publicity about the upcoming instalments.

However, many of the investors who unwittingly bought the stock in recent months do not have the money to pay even the first instalment. They will be keen to support the move by the renegade shareholder Nicholas Bolton, who amassed almost 20 per cent of the company for next to nothing, to call a shareholder meeting to wind up the company and escape the $2 a share liability.

BrisConnections has said it will be chasing the shareholders for the money, and one of the company's creditors, Macquarie Bank, is using the courts in an attempt to stop Bolton from calling a shareholder meeting to wind up the company.

Macquarie is waiting for the money that BrisConnections will receive from the first instalment receipt to repay a bridging loan to the company. It also went into the market this week and picked up 8 per cent of BrisConnections in an attempt to use its vote to block Bolton's move to wind up the company.

And where is the Australian Securities and Investments Commission when the small investors need protection?

11:20 AM, April 01, 2009

Anonymous newswatch said...

Brisbane Times:

BrisConn solvency questions

April 1, 2009

LEGAL action by BrisConnections to have major shareholder Australian Style Investments wound up and two planned meetings of unit holders cancelled, may have backfired because the builder of Brisbane’s $4.8 billion Airport Link project now faces the prospect of proving its own solvency.

The twist in the tale of BrisConnections comes as several parties consider a class action against Macquarie Group — a financier, underwriter and original sponsor of the Airport Link toll road — on behalf of clients who bought BrisConnections units via the investment bank during the company’s initial public offering (IPO).

BusinessDay has been told that several parties are considering legal action on behalf of Macquarie clients who believe misrepresentations were made by the investment bank’s advisers to induce them to purchase the stapled units during the IPO.

Macquarie advisers told investors that the bank would take a stake in BrisConnections, but it then sold out weeks after the company was floated in June last year.

In a directions hearing before the Supreme Court in Melbourne yesterday, a Brisbane company, Wonate One, was granted leave to join proceedings as co-defendant, alongside Australian Style and its 26-year-old owner, Nicholas Bolton.

Legal counsel for Wonate One, led by Michael Sifris, SC, and barrister Geoffrey Slater, are being provided by listed litigation company IMF.

Mr Sifris told the court his client wished to represent ‘‘mum and dad shareholders’’ of BrisConnections who were being asked to contribute a $1 instalment next month to a project with ‘‘little or no chance of commercial viability’’.

‘‘Unit holders are being told by BrisConnections ‘you will pay up, you have no choice’, and in some cases, ‘we will sue you if you don’t’,’’ Mr Sifris told the court.

‘‘Why is BrisConnections avoiding telling them what the net present value of their units is? It’s highly likely the units have a negative value, so we submit that an independent party should look into what the debts, claims and liabilities of the plaintiff (BrisConnections) are. These unit holders just want to know ‘what is my unit worth’ ahead of any meeting.’’

When the case resumes tomorrow, Wonate will argue for the court to use its power under the Corporations Act to order a meeting of BrisConnections unit holders, regardless of the outcome of the BrisConnections case against Australian Style. Wonate will also request that the court appoint an independent accountancy firm to report on the state of BrisConnections’ accounts before any vote of unit holders.

An affidavit sworn by accountant David Armstrong and tendered to the court by Wonate’s counsel yesterday states that BrisConnections could be insolvent because of an ‘‘inconsistency of balance sheet reporting’’ by the company.

According to Mr Armstrong, BrisConnections has inflated its assets on its balance sheet by counting $780 million of yet to be collected instalment payments on its units and a further $200 millionfrom a deferred capital raising that will not be collected for another six years. If these sums were not counted, Mr Armstrong states, ‘‘equity goes into deficiency to the extent of $31 million’’.

‘‘This raises the question of solvency and possible insolvent trading being conducted by the responsible entity (BrisConnections) since December 2008.’’

Mr Armstrong is helping two BrisConnections unit holders, Steven and Violet Csutoros. An affidavit from the owner of Wonate One, Ross Patane, was also submitted to the court. Mr Patane is principal of the corporate advisory department of WHK Horwath’s Brisbane office, and Wonate is his selfmanaged super fund.

According to Mr Patane’s affidavit, he has asked BrisConnections for information about its financial position before the planned extraordinary meeting.

‘‘I am concerned (BrisConnections) is not disclosing these details because the project is no longer able to be shown to be a viable investment,’’ he states. The news follows yesterday’s revelation that Macquarie Group has started separate legal action in the Supreme Court of Queensland to ensure that Mr Bolton’s planned meeting of unit holders does not go ahead.

That case begins in Brisbane this morning.

1:27 PM, April 01, 2009

Anonymous newswatch said...

Sydney Morning Herald:

ASIC steps in for case

April 2, 2009

THE corporate watchdog is preparing to make its own submission to the Victorian Supreme Court in the legal battle between Brisbane toll-road builder BrisConnections and a rebel shareholder, Nicholas Bolton.

The Australian Securities and Investments Commission has been in contact with several parties involved in the case and is believed to be preparing a submission on behalf of embattled unit holders, who must make a $1-per-unit payment to BrisConnections on April 29.

A special counsel for ASIC has requested access to documents and affidavits from lawyers involved in the case.

"They seem to be specifically interested in the mums and dads who are holding these stapled units and what effect a call will have on them," said one person who had been contacted by ASIC.

"ASIC is also very interested in the rights of unit holders who wish to hold a meeting. They have their own lawyers on the case. The feeling is that ASIC is seeking to intervene on behalf of unit holders."

Representatives of ASIC have also been in contact with BrisConnections in recent days.

The toll-road builder has taken 26-year-old Nicholas Bolton to the Supreme Court to have his company, Australian Style Investments, wound up, and prevent an extraordinary general meeting of unit holders being held next week.

Australian Style is the biggest shareholder in BrisConnections.

On Monday Justice Ross Robson allowed legal counsel claiming to represent small shareholders to join the case as a co-defendant alongside Mr Bolton.

That counsel, led by Michael Sifris, SC, and barrister Geoffrey Slater, is being funded by listed corporate litigation company IMF under a pro bono scheme.

When the case resumes this morning, Mr Sifris will request access to BrisConnection's accounts to determine the financial state of the Airport Link project.

He will also request that the court exercise powers it has under the Corporations Act to call a meeting of unit holders to vote on the future of BrisConnection's unit trusts.

The case has been running in court since March 17, but ASIC has shown signs of interest only in the past couple of days in the fate of the hundreds of unit holders who face financial ruin.

Meanwhile, in a separate case heard in the Queensland Supreme Court in Brisbane yesterday, lawyers argued for almost two hours over an application by Australian Style Investments that the court stoush between Macquarie Bank Group and BrisConnections be heard in Victoria.

Macquarie began the legal action in a bid to ensure that a planned Brisbane meeting of unit holders did not go ahead.

Justice Peter Dutney will announce his decision today.

11:37 PM, April 01, 2009


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