By Ben Turney | Friday 5 September 2014
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
In February 2011, just over two months before New World Oil & Gas (NEW) came to market, the Texas Community Bank brought a court action against CEO Bill Kelleher for failing to repay a $585,000 loan. This loan was a mortgage on Mr Kelleher’s private yacht, Neftegaz. With less than a month until Mr Kelleher is due to repay New World whatever he owes the company on the $333,000 he borrowed in March 2013 to participate in that month’s controversial placement, troubling questions have arisen about the state of Mr Kelleher’s finances, the extent to which he disclosed his financial difficulties and how these might have affected corporate decisions at New World. Would British private investors have been prepared to back a company, whose CEO had apparently defaulted on an outstanding $550,000 debt? More to the point what did New World’s Nomad Beaumont Cornish know about this? Surely mention of this live legal action should have been published in the original prospectus?
This affair began on February 1st 2008. On this date, Mr Kelleher received a loan from the Texas Community Bank of $585,000. This mortgage had an interest rate of 7.5% and Mr Kelleher was meant to make sixty consecutive monthly repayments to repay the balance in full. To secure this loan, Mr Kelleher used his private yacht, Neftegaz, as collateral.
According to the case brought against Mr Kelleher, for just over two years he made payments on the loan, but stopped after July 19th 2010. New World was founded in April 2010.
On February 21st 2011 the Texas Community Bank judged Mr Kelleher to be in default of the loan and started recovery proceedings against him. By this point Mr Kelleher owed $534,309.80 on the original loan and unpaid interest of $22,248.90. New World was admitted to AIM on May 11th 2011.
Defaulting on the debt was bad enough, but the Texas Community Bank also made other allegations against Mr Kelleher. First it alleged that Mr Kelleher allowed the insurance on the secured yacht to lapse or he failed to renew it. On its own this might not sound too serious, but the from the Texas Community Bank’s perspective this was a material breach of the mortgage agreement. After all, the loan was secured against the yacht. In the words of the case filed against Mr Kelleher, “at the very least, Mr Kelleher failed to properly notify the Bank of any change in the insurance or deliver to the Bank evidence of current insurance”.
Given the primacy of disclosure rules for directors on AIM, it was surely material that Mr Kelleher faced such allegations in court at the same time he was in the process of securing a London listing for New World.
Unfortunately the allegations against Mr Kelleher got worse.
The Texas Community Bank appears to have viewed Mr Kelleher as a flight risk.
You might think that this was just a case of the Bank adopting an aggressive posture in its attempts to recoup the money owed by Mr Kelleher, but here is what it said in its official complaint:
“In the last sixty days, upon information and belief, Mr Kelleher has moved the Vessel twice, from a warehouse to a boat slip and then to a repair yard. Upon further information and belief, Mr Kelleher may have relocated to California. Each of these factors placed the Bank on notice of the potential for Mr Kelleher to leave this Court’s jurisdiction with the Bank’s collateral, and thus underscores the need for the Bank to seek judicial action to foreclose its Mortgage and seek the arrest of the in rem defendant.”
In layman’s terms, the Texas Community Bank appears concerned that Mr Kelleher could have made off with Neftegaz, so asked the court to impound the yacht. Judging by the speed with which the Texas Southern District Court issued the “Warrant to seize a vessel”, this concern was taken seriously. The court issued the warrant on February 25th 2011.
Moving our attention back to events at the time, in early 2011, on this side of The Pond, Beaumont Cornish, New World’s Nomad, should have been performing background checks on the company’s directors to satisfy itself of the “suitability of each director and proposed director of the applicant”. Admission Responsibility 2 of the AIM Rules for Nomads states “the nominated advisers should usually:
Did Beaumont Cornish perform these checks?
If it did, it seems highly improbable that Beaumont Cornish’s questionnaire wouldn’t have included a section about personal finances or current litigation faced by any of the applicant directors. Perhaps Mr Kelleher did declare the Texas Community Bank’s legal action against him. Perhaps he told Beaumont Cornish about the warrant issued to seize his yacht. Perhaps he revealed he was in default for more than $550,000.
Let’s see what Beaumont Cornish has to say…
To read the full claim made by Texas Community Bank against Mr Kelleher, click here.
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