Bolton Not Clear of Brisconnect Yet
Bolton Not Clear of Brisconnect Yet
Courtesy of Leghton Holdings' largess, Nick Bolton's Australian Style Investments (ASI) has $4.5m cash in the bank. It seems he's is going to need it.
I couldn't believe today's media reports that Leighton had bought ASI's 77.4 million Brisconnect securities for $4.5m. No doubt it's a profitable construction contract - and Leighton wants the toll road to Brisbane airport finished. But do they really want to commit another $154m in equity to this project?
No, is the short answer. And it didn't. Leighton didn't buy ASI's securities. It paid $4.5m for the right to vote them at today's extraordinary meeting (and at any "subsequent meeting held in place of that meeting"). In short, Leighton bribed Bolton to change his tune.
But that means ASI is still on the hook for the remaining instalments on its securities – $154m in total. It looks like Macquarie is going to have to rescue most retail investors but it's hard to imagine the millionaire's factory letting Bolton walk away with $4.5m after all the trouble he's caused. Then again, why would Bolton sign the agreement if he didn't have an escape mechanism? What's the use of $4.5m if you're about to declare bankruptcy?
I'm yet to work out if he's a slightly amoral genius or just plain dumb. Either way, this saga looks to have a few twists and turns left yet.
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Perhaps it's ok to assume that there is a deal being nutterd out between underwriters similar to the one before Easter.
As for Bolton, assuming there is an as-yet-unknown escape hatch for him, well... Let's be nice and say he played a good hand of poker for now.
Rumour has it that Bolton has a deal to sell his units to a $100 company set up by an associate of his father.
Is it not obvious that Bolton got superb legal advice and the scheme is deeply thought out? The lawyer footprints are all there. 19.9% to avoid takeover obligations. Pty Ltd company is used to buy the units to avoid personal liability on the calls. Bolton is not personally involved. No insolvent trading because company not trading, so no director is liable for debts. The Leighton money is paid to another company, not ASI, so no preference in winding up. Bcos of outstanding calls, and because of 19.9% takeover provisions, neither Leighton nor MacBank can afford to buy large chunks of remaining units to outvote him. The major players have reputational risks if they allow subsidiaries to be wound up. Bolton does not. Steve, I would expect an intelligent investor in stocks to have at least a basic working knowledge of the Corporations Act.
I read somewhere that Bolton had setup an option for another company to buy all his BrisConn shares, to which he has no connection, so the company will declare bankcruptcy when called upon for 2nd installment, but as it has no assets, Macquarie gets nothing back and Bolton walks away with his 4.5m.
Would be nice to find out what is actually happening though...
Steve do you have no knowledge of the Corporations Act?
Cheers
Hi Peter,
I'm not sure the legal advice is as superb as it may seem. It is true that there can be schemes and legal processes (think tax schemes and multiple trusts) that evade the spirit of the law but sometimes, especially when someone acts in bad faith (in this case to creditors for Bolton's own personal benefit), the law has a way of catching them. ASIC doesn’t have a friendly history with high profile breaches (Rivkin, Adler etc).
This is especially true of the Corporations Act which imposes general duties on directors to act with care and diligence, in good faith in the best interests of the organisation and not to improperly use their position or information received for personal gain. It all gets a bit tricky if Bolton is the sole director and shareholder of the company holding the shares (as no shareholders will have a claim against him under a fiduciary duty) but s180-182 of the Corporations act (http://www.austlii.edu.au/au/legis/cth/num_act/ca2001172/s180.html) imposes large civil penalties for breaches of the duties above.
The ASIC vs Adler decision comes to mind here (http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWSC/2002/171.h...).
I don't know anywhere near enough about the facts here and I don't mean to imply I do but I wouldn't be feeling too comfortable if I was Bolton holding to right to pay someone $150 million after doing an under the table deal to make $4.5 million. ASIC alert (sophisticated investor, millions in profit, high profile case, angry powerful creditors and rumours of selling debts to cardboard companies).
Then again, I'm not a guy who owns a corporation called Australian Style Investments. (ASIC vs ASI in the making?)
It's been a few years since I studied the Corporations Act but this seems to me to be as good a case as any for piercing the corporate veil.
As I recall, in certain circumstances the court can remove the protection afforded by the limited liability structure. It's possible (probable, even) that there's a more relevant reference than the one I recall, which was Dennis Willcox Pty Ltd vs Federal Commissioner of Taxation (1988) 79 ALR 267, in which Jenkinson stated:
'[T]he separate legal personality of a company is to be disregarded only if the court can see that there is, in fact or in law, a partnership between companies in a group, or that there is a mere sham or facade in which that company is playing a role, or that the creation or use of the company was designed to enable a legal or fiduciary obligation to be evaded or a fraud to be perpetrated.'
Does anyone with specialist knowledge of this field have comments to add on this aspect? Perhaps there have been significant developments since this...
You have probably identified the most vital issue. Why did a third party receive payment for ASI giving away its right to vote? If ASI is wound up for non payment of the impending calls, a liquidator will rightly pursue this issue. But there are certainly ways and means to get around the liquidator. It will be a long and hard slog for $4.5m, and in the meantime, someone must fund the liquidator to investigate and prosecute.
However, the fundamental point is that Bolton used a limited liability company to purchase the holding. At the time of his purchase, the calls were not made yet, and there was therefore no liability due and payable. He has now structured the deal so that payment goes to a third party instead of the company with the liability.
The business situation from Bolton's point of view:
1. If a deal is struck with the underwriters to relieve liability on the calls, he walks away with $4.5 m.
2. If the underwriters play hardball, he can choose to allow the company to be wound up in liquidation. Worse case scenario, he coughs up and return the $4.5 m, whereupon he ends up even stevens less expenses. In the meantime, he gets to use the $4.5m whilst the liquidator works through the mess.
I cannot envisage a probable scenario where Bolton is personally liable to cough up $150 m. Piercing the corporate veil is not viewed as a cause of action with a high probability of success, especially when no fraud or deception took place, and the transaction or scheme in question is purely commercial in character.
Lastly, a necessary disclaimer that no reader should take this as legal advice, as it is not intended as such.
Do the tax implications have a bearing? Aust Style Holdings apparently received the $4.5m for services provided by Aust Style Investments. I would imagine that the ATO would view the tax liability from this transaction to be ASI's. Does this then allow other regulatory bodies, or the court, to view the income to be ASI's as well?
Anyway, good luck to the little jerk. MacBank should have closed this sorry episode out long ago- they are going to have to sooner or later to keep up their credibility for future (ad?)ventures.
He will not have to give up 150m. I would assume he doesnt even have it. My point was not about the minutia of the liability he may or may not have occured by doing things in certain ways. It was a more broad point that alarm bells are ringing and if he in fact has acted as shadily as it appears he has, it is times like this when the corporate vail is pierced and large fines and weekend detention are put in its place. I would prefer not to be in his position right now - chance at $4.5 million or not.
I hope ASIC makes an example of Bolton. Sure the project was badly-conceived, but that doesn't his actions in placing at risk thousands of jobs and a needed infrastructure project all for making a quick buck.
MacBank might be all smoke and mirrors and excessive fees, but at least they leave something behind, unlike Bolton who is only in it for himself.
As a taxpayer I'd be happy for ASIC to spend the next few years in court with Bolton, chewing up his 4.5 mil and then some.
http://business.smh.com.au/business/asic-to-investigate-boltons-45m-payo...
ASIC spokesperson says they're on the case. Interesting to see how it develops seeing as Bolton has probably only broken the spirit of the law rather than the letter of the law.
Papers have reported that Bolton has a sophisticated corporate structure for his investment group. If so, he may be able to get ASIC or any other pursuing party tangled in the web but permitting ASI to sell its vote for $4.5M and directing payment to Australian Style Holdings (ASH) appears to be a breach of Bolton's duty to ASI, which ASIC could pursue under CA, s 182. If successful, ASIC could attempt to recover the funds from Bolton directly. Or if, as seems likely, he couldn't pay the trustee's of Bolton's bankrupt estate would be in a position to exercise all the powers formerly possessed by Bolton in regard to his investment group. Recoupment of the $4.5M should be possible but it is likely that it could take time and lawyers may see more of the cash than BrisCon.
"MacBank might be all smoke and mirrors and excessive fees, but at least they leave something behind"
I'd disagree with this. I think what Bolton did was as much good business as anything MacBank would do.
If Bolton's sale of shares in these circumstances is suspect (and his association with the possible previous non-reporting of a serious security breach do not reflect well), could someone please explain why Leighton's purchase in these circumstances is not equally suspect?
Is this not an action that may call into question the reputation of a leading Australian company whose reputation should be prized?
Does this questionable transaction not also indicate a partnership between Leighton’s and Bolton?
Could someone also explain to me why the unusual act of selling shares with an incredibly high debt attached to them (in comparison to the share price) is not an act that requires an extremely diligent duty of disclosure. Surely to such a level that written and unequivocal acknowledgment of this future debt must be must be obtained by the selling entity from the buyer.
The failure of this indicates that the seller is happy to act in an underhanded fashion (hardly a good reflection on the seller) and if this action is permitted by the corporations act, then it is clearly in need of serious review.
Is this the type of reputation that Australian securities industry needs?
The whole event is a disgrace, and badly affects Australia's international reputation. The need for federal legislative intervention is clearly urgent, including an urgent political settlement to the current debacle.
I own no shares associated with this farce.
Bolton has a put option to another party.
So we can see whats coming next. He'll exercise the put option, and the shares are gone. He gets to keep $4.5M, no breach of duties amongst his own companies. Shares gone to somebody else unrelated to his management structures.
I suspect ASIC will end up being all huff and puff but won't be able to do anything because nobody in Bolton-land will have been hurt. The person who takes the shares through the put option won't be able to pay (but they would have known that in the first place), so there will be no recovery there.
Lots more noise to come but I suspect he's a clever little sod who I would not ever want to have anything to do with - watch out for the smile, and one hand held out in friendship but the other with a knife in :)
There was a cover feature on Bolton in yesterday's Sun-Herald's Sunday Life magazine for anyone interested in the Nicholas Bolton story. It raised my eyebrows when it referred to 'a type of financial acumen that has seen him described by some in the media as the next Robert Holmes a Court.'
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