A horror share story

[GreatPig]

A decision (PDF) relating to a similar case (but for much lower value) a few years ago. The details are different, in that it's about information in a magazine, but the contributing share purchase part is similar.

The decision went against the purchaser.

GP

 

[GreatPig]

What if you were to buy up 51% of the shares (at $0.001), and wind up the company?

Does the company have any significant debt? Specifically, would a wind-up result in a net asset or debt position?

By my understanding, holders of partly-paid shares have to fork out the rest in the event of a limited liability company winding up.

Also, 51% may not be enough. There are some rules to protect minority shareholders, but I'm not sure of any specifics.

GP

 

[dave99]

Yeah, I had a read of the PDS, they have about $3bn in bank debt so a wind up wouldn't work. Set against "non-tangible" assets of the future toll revenue...

It's the typical Macquarie Model mess, you actually buy units in a trust, rather than a standard company structure.

I don't know enough about how trusts work, but perhaps you could have a $2 company buy the units? Then have the company vote you on as a director, and give yourself some fees?

Later when the instalments come due, the $2 company will be insolvent, and Mac will cough up the dough. But they're the smartest guys in the room, I'm sure they've covered their a**es on every possible scenario.

 

[Pushka]

Dave, you are very right, Mac does have this stitched up. Apparently, as long as Mac pursue every purchaser to the fullest extent (which means pursuing them to file bankruptcy protection if that is what it takes) then they will still get their fees and will come out ok. But those people will lose their personal assets. Which means that anyone who cannot afford the instalments will have to be taken to the cleaners.

You buy some infrastructure shares (usually a good thing) for $500 and end up with a million dollar liability that Mac, Deutsche etc HAVE to pursue. It makes me feel ill.

This is exactly the same scenario as with Telstra share instalment plan; the difference being that the share price didnt fall after offer, and there were buyers who wanted to buy them, even though they had to pay extra money later on. Brisconnections was actually oversubscribed. And did you know the majority of buyers in the IPO were Institutional! I wonder if any Super Funds will also get hit for this. State Governments? Councils? Although they would have paid $1 per share, their liability is less, the trouble is they have invested in a possibly dud project, given the .001 current price.

 

[grossreal]

hi
interesting concept
throw into that mix that the 2 dollar companies are in vanuatu

 

[handyandy]

hi
interesting concept
throw into that mix that the 2 dollar companies are in vanuatu

Thought it might bring you out to play

Is the concept sound? Or can the directors become personally liable in some way?

If it was to fly then I suspect that a 20c may be a bit high considering that some of these people have really bought up big. As BilL has indicated just the minimum purchase ($500) is over 1mil shares with a $1mil liability so paying $50,000 would be manageable for those caught in this situation.

Cheers

 

[Strannik]

well if the company goes broke it means you cannot be a director for 10 years as far as i know

 

[Pushka]

well if the company goes broke it means you cannot be a director for 10 years as far as i know

That would be fine if you never wanted to be one in the first place. This process would just be a means to an end.

 

[grossreal]

sorry to say that no thats not true (10 years)(thats only for aust companies)
if the buyer on the 2 dollar company is in itself a company and that company has no requirement to have a living peson as a director
sound complicated well it is
not sure how you find the sellers of the shares the buying and that part would be interesting.
I think that will be the issue
how do you buy these shares and at what discount
do you just buy them on the exchange
it would be a very interesting proposition.
there is a few hurdles that would be required to overcome but I do not have a issue with the idea or the structure.
and is not hard to setup.

 

[Pushka]

I can give you contacts for five hopefull sellers! I am thinking offmarket transfers.

 

[dave99]

I would recommend getting some legal advice before embarking on anything like this... I've attached the corporate structure from the PDS, as you can see it's very complex, and unclear what rights you might get from owning a majority of the trust units. Just a word of warning

 

[Pushka]

Some lawyers are going to be very rich over this. NAB and E*trade warn people just before the buy, that $1 is paid, $2 remains unpaid. Apparently Commsec gives no warning prior to purchase. These people bought through Commsec.

 

[handyandy]

I would recommend getting some legal advice before embarking on anything like this... I've attached the corporate structure from the PDS, as you can see it's very complex, and unclear what rights you might get from owning a majority of the trust units. Just a word of warning

The internal structure of Brisconnections makes no difference. All that the 2 'special' companies I mentioned are buying the shares like any other person can, either on or off market.

As GR says the biggest problem is getting to those people who may want to avail themselves of the services without drawing a whole heap of attention to the concept.

There is also a concept that as a director you can be liable under corporate law as it could be construed that you were trading insolvent as you were aware when you bought the shares that the company couldn't pay the second installment.

Pushka, the other solution is to find a young person in the family to acquire the shares on the same basis as the use of the 2 companies. He or she maybe made bankrupt but as they have no assets shouldn't be a problem.

Cheers

PS the other obstacle will be that the share quantities will mean that the company would become a substantial holder and enter into the takeover minefield

 

[Alex P Keaton]

I think this is a very expensive lesson for people that they need to do their homework thoroughly before doing any deal. People really need to educate themselves.

That sucks though that comsec doesnt post a warning beforehand. I wander if they can be held accountable for this. Perhaps if the people effected can employ a really good lawyer (hmmm but that will cost lots of money too wont it) they could get them out of the mess. I dunno. But then again the individual should have read the pds and new what they were getting themselves into. What a horrible thing to be going through.

 

[handyandy]

Obviously the company is very worried about people not paying the second installment as there is a whole FAQ section on what happens if you default.

http://www.asx.com.au/asx/statistics/showAnnouncementPDF.do?idsID=00913275

Cheers

 

[GreatPig]

I think there might also be the real possibility of a court reversing any sale to a $2 company, given that it would obviously be intended to relieve the original purchasers of their obligations without any possible hope of meeting the instalments, thus returning the shares and the liability back to those original owners.

GP

 

[grossreal]

hi greatpig
not sure if your right
if the company is a overseas company and the transaction is done overseas and the company has been in operation for say a min of 3 years then I think that it would be fine.
yes there would be a case to fight the transaction but thats between the local lquidator or litigant and the overseas company
and that would be seen as a very difficult think to solve.
and for the people looking at say a 4 mil possible loss
with a cost of about 25k to do
thats a very big difference and that is already there so yes is very possible
and the rules here do only apply to companies here (but overseas companies and their rules are very different) and they can invest in australian equities
so if a person wishes to sell there shares to company and ( when andy says that he thought I would come out to play well yes I am)
then this is my playing market.
and not only this post but anyone else that wishes to put a structure in place to avoid losses that what I do.
it is upto the vendor if they wish to sell that shares or property
and if a vendor wishes to sell pay to take them off my hands thats fine.
we assess risk and I think it would be very interesting to see what happens when these companies try to recoup the second and third instalment plus there would not be anything stopping a class action when we have alot of groups putting there shares with say us.
as I have said alot of times we are not a charity nor would I recommend donating these shares to charities we make money on a rise or a fall.
and yes I would like to play in this game

 

[Pushka]

OK, lets say I can get you the contact details for perhaps four of these people (with liabilities now ranging from $1million to $4million) then you people might have some advice for them? Your conversations have gone way past my understandings.

Hey GP, I am sure you would have read the thread.

 

[handyandy]

Obviously those holding these shares are getting desperate (or will as time goes on)

TREVOR ROWE: If they don't pay in April, we have an obligation under the underwriting agreement that we need to pursue the collection of any outstanding instalments. But we get the money anyway, 'cos it's underwritten by Deutsche Bank and Macquarie Bank.

Gerhard Limnios hopes to sell before the deadline, but says he might consider paying someone to take the shares off his hands.

GERHARD LIMNIOS: Just before drowning, then you would say yes. You have no other choice; but other than that, probably not.

http://www.abc.net.au/7.30/content/2008/s2425392.htm

AS TC posted already the fact is that these shares now have a -ve value with those people who bought having to take a loss. In fact based on the extra $2 owing that most shareholders can not pay the actual share price is in the vicinity of -$2.01

Over the weekend there were 95mil shares on over for $0.0001 and currently some 96mil under 1cent. This equates to about 25% of the shares issued.

GR re contacting people there is a way of actually getting hold of the share register. This is the way that those dodgy companies obtain addresses to send offers to all the grannies.

Cheers

PS I am surprised that the share trading has not been suspended also if it is suspended can you still do off market transfers?

 

[grossreal]

thank for that will get a couple of people to have a look at it.