By Ben Turney | Sunday 14 June 2015
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.
Thursday’s announcement from New World Oil & Gas (NEW) made one thing crystal clear. New World’s board is determined to do whatever it can to let the naked shorts off the hook.
Throughout this fiasco New World’s board has made no effort to engage with the company’s shareholders. This isn’t surprising given the directors’ track record, but Article 74 of the Companies (Jersey) Law 1991 makes clear the their legal responsibilities when enacting their duties. It says;
“(1) A director, in exercising the director’s powers and discharging the director’s duties, shall –
(a) act honestly and in good faith with a view to the best interests of the company; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.”
On Tuesday I asked why New World has not sacked Cornhill?
I put this question directly to the company and got no response.
Now, having thoroughly read New World’s circular, I want to know why not only has New World not sacked Cornhill, but rewarded it so obscenely for such atrocious performance?
I will return to Cornhill’s fees another day, but for now let’s consider New World’s directors’ admissions in its RNS on Thursday about their determination to save the naked shorts and the deeply flawed logic it has applied to attempt justify its unjustifiable position.
Any future action or dispute against New World’s directors will inevitably focus on the price of the open offer. At 0.09p the open offer is grossly mispriced. New World’s board says it “focused on the Ordinary Share price immediately prior to the announcement of the Original Placing which was a closing price of 0.095p on 28 April, 2015“, but this simply cannot take into account current market factors. The presence of the confirmed, vast naked short position in New World’s stock is a gilt-edged opportunity for the company to charge a substantial premium to the price its stock was trading at before this fiasco began. By explicitly focussing on April 28th’s close New World’s board has admitted it is not factoring the short position into its decision on price.
However, in not accounting for the naked short position when setting price, why is it that New World’s board has attempted to tie the success of any fundraising it conducts to settling the naked short position?
Here are two of the key quotes, confirming the directors’ stance:
New World’s board can’t have it both ways. Either market events since April 29th are completely irrelevant to their decision-making or those events form the basis of all decisions.
Just to emphasise the lengths it is prepared to go to, to save the naked shorts New World’s board went on to say.
This is simply contemptible. In admitting that it is prepared to use a cash box placing, New World’s board has said in the clearest manner possible it does not give a damn about what its shareholders want and is going to use whatever means it can to save the naked shorts. This link provides an excellent description of what a cash box is.
And it gets much, much worse. New World’s board went on:
At this point I am fighting every urge to launch into a tirade of expletive-laden invective.
How dare New World’s board treat its shareholders so appallingly.
Why on earth should New World’s existence rely on its ability to “identify or agree” a way with Cornhill to close the naked short position?
Cornhill created this mess.
It’s Cornhill’s future that should be on the line, not New World Oil & Gas’.
The smug reaction of Cornhill’s supporters to Thursday’s announcement strongly suggests they think they have won.
New World’s shareholders are a determined bunch and are not going to stomach this outrage. This fiasco is going to keep running until its architects are brought to account.
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