Investors ‘unlikely’ to recover funds from New Earth sale
Investors in the New Earth Solutions waste management group are ‘unlikely’ to recover any funds from the sale of the company after three investment funds were provisionally liquidated last week.
The immediate future of New Earth Solutions was saved last week (9 June) when DM Opco, a Leeds-based company about which little is known, purchased the group after just two days in administration.
The sale was said to safeguard the 143 jobs across New Earth Solutions’ five sites, which treat around 450,000 tonnes of municipal and commercial waste a year through in-vessel composting and mechanical biological treatment, as well as at its head office in Verwood, Dorset.
However, while the jobs have been saved, investors in the company seem likely to lose significant amounts of money as the sale has not generated enough funds to pay off senior lenders.
Financial distress of company makes reimbursement unlikely
On 8 June, the High Court of Justice on the Isle of Man filed a claim seeking a winding-up order for the New Earth Recycling & Renewables Fund (NERR), as well as investment funds the Eclipse Investment Fund and the Premier Investment Opportunities Fund (PIOF), and appointed Sarah Sanders and Alex Adam of Deloitte LLP as joint liquidators ahead of a court hearing on the winding up petitions on 12 July
At this hearing, the court will decide whether the funds should be placed into liquidation. At this stage, the joint liquidators do not have the power to sell assets or to manage the affairs and business of the funds.
According to Adam, who wrote to investors yesterday (16 June) explaining the current situation, money from investors was invested into NERR by the governing bodies of PIOF and Eclipse, and subsequently invested into the two trading New Earth companies – New Earth Solutions Group Ltd and New Earth Solutions Facilities Management Ltd.
The recovery of those investments, Adam explains, was dependent on the companies generating profits and cash flows from their assets and operations. However, Deloitte understands that the two companies also owe money to senior lenders who hold security over their assets, which would have to be paid in full before investors begin to see remuneration.
Adam wrote: ‘We understand that the administrators have sold the assets of NESFM and NESG for an unconfirmed amount of proceeds. The financial distress of [the two companies] and the presence of more senior lenders, does mean that substantial recovery of value from those investments appears unlikely.’
Investors recovering their money will depend on actions taken to recover value from any parties that can be found to have contributed to the failure of New Earth by failing in their duties, the ability of those parties (if any exist) to pay for their failures and the costs incurred in the liquidations.
Michael J Richardson, Director of the New Earth Premier Fund admitted in a separate letter to the fund’s shareholders yesterday that the full details of the administrator’s sale of the companies to DM Opco are ‘unknown’, but confirmed that the fund’s directors ‘consider it unlikely that the sale of these assets to DM Opco will achieve over and above the amount of senior lending’.
There is very little information about DM Opco available, but according to Companies House records, DM Opco Ltd’s sole director and shareholder is Declan McKelvey. He is listed as an accountant and was appointed a director of Direct Golf UK last October after the golf equipment retailer’s administration was also handled by Duff & Phelps, the administrator appointed for the New Earth sale.
Prior to the New Earth companies going into administration, talks with an unnamed European combined heat and power (CHP) plant developer with a view to take over the companies had been ongoing since October 2014. The talks broke down in May, however, over worries about a takeover’s impact on New Earth’s contracts.
Richardson says that the predictions that any return will be generated on the sale ‘will come as extremely disappointing news to everybody connected with the fund, including the directors, who believe they have made every effort to negotiate the best solution for shareholders’.
Had the deal with the developer been agreed instead, he wrote, there would have been ‘a possibility to repair shareholder value in full over the course of time’.