The pyrrhic victory of the pirate mutineers Shareholder activism can be rewarding. But for a band of advisers that toppled the board of Benjamin Hornigold it comes at a huge personal and financial cost.
Jonathan Shapiro - Senior reporter Jun 29, 2020 – 12.00am Sulieman Ravell, a Sydney based financial planner, said he never thought he would live through a day when he was a director of a company that fell 70 per cent upon relisting.
And that he would be happy about it.
But then again, every aspect of the fight he has helped to lead against a trio of pirate-themed investment companies has been utterly bizarre.
Stuart McAuliffe oversaw a trio of pirate themed companies. David Rowe
The fund's manager, Queensland-based lecturer Stuart McAuliffe, had emerged from obscurity with claims that the swashbuckling strategies of famous buccaneers could be successfully applied to global markets.
But Ravell found himself consumed by an effort to lead a mutiny aimed at exposing just how these companies delivered their claimed 100 per cent investment returns, before helping to replace the board of directors of one of the companies – Benjamin Hornigold.
This week a culmination of an expensive, physically and emotionally draining battle was the relisting of Benjamin Hornigold Ltd, which had been suspended by the ASX in 2018 while under the previous management.
And since June 2019 when the company’s previous board resigned ahead of a shareholder vote they were set to lose, the new board of directors has been working to ascertain the worth of the assets.
We make a good living doing what we do and financial markets are take take take – you have to give a bit back. — Sulieman Ravell, financial planner
They’ve also worked to recover money owed to investors that had been held in the form of foreign bank notes worth $7 million with a view to re-listing the company.
That figure is about all the value that’s left to claim for investors in these companies – hence the sharp fall upon re-listing – but it’s better than nothing.
Ravell says he’s not sure he would do it again.
He faced legal threats for a series of articles posted on his website that issued warnings about investing in the funds.
That sucked him into a broader battle that involved providing information to regulators and helping investors to recover their investments once it was suspended.
As an aside, no disciplinary action has been taken by regulators against McAuliffe or any of the funds' previous management.
During that time, Ravell has had to deal with two serious family illnesses as his brother passed away, adding to the sleepless and stressful nights.
But he says he was left with no choice but to take the fight to the pirate-themed companies.
“We make a good living doing what we do and financial markets are take take take – you have to give a bit back," he says. "One day it could be me on the other side of the investments.”
It was that sentiment that helped recruit Sydney fund manager Michael Glennon to chair Benjamin Hornigold.
Glennon was initially reluctant but his eventual willingness to join the board was important as he had the funds management and investment experience required to lead a turnaround.
It hasn’t been easy for Glennon either, who has the responsibility of running his own fund. One evening he collapsed in exhaustion, breaking his nose and fracturing his ribs.
The source of the fatigue was an intensive Takeovers Panel battle with the former management that involved reading and responding to large volumes of material.
The role of the Takeovers Panel was important in the shareholders' battle against the company's board.
Ravell says that the panel takes a pragmatic view of the law so when it comes to issues like defining a related party, they’re willing to close apparent loopholes.
The Takeovers Panel blocked a takeover by National Stock Exchange listed John Bridgeman of Henry Morgan and Benjamin Hornigold.
It also ordered the repayment of a $4.5 million performance fee paid by Benjamin Hornigold to John Bridgeman and the return of $7 million of foreign currency notes.
After much sabre rattling, a group of mutineering shareholders was able to arrange a meeting to vote out the directors of Benjamin Hornigold.
But the existing board claimed the meeting was arranged in breach of the Corporations Act partly because they had omitted some fax numbers – thus preventing certain investors from responding via fax within the time period demanded by the Corporations Act.
That court case was another source of stress for the directors – including financial planner Gary Miller – who was personally on the hook if they lost.
The court dismissed the claim. The meeting went ahead and the directors resigned rather than suffer the indignity of being turfed.
But ironically the first bill the new board had to pay was the costs to their own lawyers.
That is sadly a common trait when investors are battling to get their money back, as they find they’re paying the lawyers they’re fighting against.
In the period since the new management took charge they also faced a lengthy battle to get access to the bank accounts, which had little in them, and the books and records.
To help the time-poor directors the previously anonymous 10 Foot Investor – Sean O’Neil – chipped in.
O’Neill had blogged about the pirate-themed funds and was the subject of legal action. His internet service provider and his own lawyer were sued as a means of revealing his identity.
O’Neill's knowledge of the complex web of companies meant he made important contributions in untangling the mess for shareholders.
A big win was recovering funds that Benjamin Hornigold invested in Kings Currency.
The $7 million was held in foreign currency bank notes, and the cause seemed all but lost given lender Partners for Growth claimed they had security.
But an agreement was eventually reached and the funds were returned.
Ongoing litigation
With a better handle of the true value of the assets and a plan to invest the funds at hand, the board was in a position to re-list the company.
But there is ongoing litigation and Ravell says the corporate regulator has requested information relating to the conduct of the former board.
In some sense it’s a pyrrhic victory given the blood, sweat and tears involved in wrestling control of just one of three companies controlled by McAuliffe.
For some investors, the losses have been devastating. Those who went through brokers and planners, tended to have a modest proportion of their wealth caught up. But many of those advisers took the situation personally.
The more significant losses were born by self-directed investors who were prepared to bet big that the investment genius of McAuliffe, who oversaw the management of the funds, was real and repeatable.
While the pirate-themed names may have served as a warning to many investors that there was significant risk associated with them, these were companies that were listed on the Australian Securities Exchange and National Stock Exchange, and regulated by the Australian Securities and Investments Commission. They had been audited by a big four accounting firm.
Trust in the system
This, Glennon says, is why many investors were compelled to trust the valuations and invest their money.
What makes the Benjamin Hornigold situation unique is that this was shareholder activism that did not stack up commercially for those that led the charge.
The motivation was to fill in the gaps led by ineffective regulation to call out poor investment schemes and to achieve some semblance of justice.
Their actions in recovering a few million dollars for investors in a small and complex investment company may seem insignificant.
But their efforts should be recognised and should serve to remind everyone in the finance industry that they all have a role to play in serving and protecting investors.
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