Aust Fin Review 3rd Oct 2014 Page 20
Pierpont has always championed the right of boards to run their companies, but investors have made it just too hard.
For many decades Pierpont has been a tireless champion of directors in their battles with the rabble. By rabble, of course, Pierpont means the oicks, yobs and wood ducks who are under the impression that – merely because they invest money in shares in a company – they have some right to dictate how directors should run the enterprise.
The wood ducks do not seem to recognise the divine right of directors to run companies as they wish and that money subscribed is simply to meet their expenses. Directors taking this attitude have no stauncher ally than Pierpont, but after some recent events, your correspondent is about to throw in the sponge. It’s all getting too difficult.
Elsmore Resources will serve as an example. Elsmore’s initial public offering had a few false starts last year but eventually got under way with a fourth replacement prospectus in December.
Elsmore was exploring for tin and sapphires around Inverell, Glen Innes and Tingha in northern NSW. It was even mining some sapphires on one lease.
John Gaffney was the chairman and Joseph Chung the executive director, but the most interesting chap seems to have been a non-executive director named Ashley Howard .
The company raised $2.2 million in 20¢ shares. According to the prospectus, the money was to be used for exploration, development, administration and working capital. But most of it never was.
Elsmore listed on December 23. A week later, John stepped down to become deputy chairman. The chairmanship was taken over by Ashley, who would assume responsibilities for the corporate affairs of the company.
Pierpont has never met Ashley, but the prospectus described him as having “a strong financial planning and private wealth background”. It said: “It is anticipated that Ashley will be a focal liaison between the investment community and the company.”
That was what was anticipated, but certainly not what happened. On such evidence as has materialised, Ashley’s focal liaison seems to have been between the company and himself, because after he had been in charge of Elsmore’s corporate affairs for seven weeks, the company discovered it didn’t have the $2.2million.
On February 20, Elsmore requested its shares be suspended from trading “in relation to a review of the company’s financial position”. The position turned out to be dire, because six days later, Elsmore announced it had started proceedings in the NSW Supreme Court seeking the return of any of the company’s funds in Ashley’s possession or control.
Ashley quit as a director on March12.
The $2.2 million raised in the float had not gone to Elsmore but had been parked in a company called Periwinkle Investments. Periwinkle had never forwarded the funds to Elsmore.
When Elsmore threatened to sue, there was a settlement under which Ashley and Periwinkle returned nearly $350,000 and promised to send the rest along later. But the rest never arrived and Elsmore is still out of pocket by nearly $1.9million.
The company’s report for the half year to December 2013 should have painted a picture of modest progress as it expanded its exploration and upgraded a processing plant. Instead the accounts looked like a train wreck because the board had to write down the $1.9 million as a doubtful debt and recorded a $2.3 million loss.
As if this picture were not bleak enough, enter Jordan Belfort , a convicted American fraudster who wrote a book about himself entitled The Wolf of Wall Street (in the movie of the book he was played by Leonardo DiCaprio ). Anyhow, in April Jordan filed a creditor’s petition in the Federal Court suing Ashley over a $255,000 alleged debt. Pierpont has no further details of the allegation, but he must admit that the petition started your correspondent worrying about the strength of Ashley’s financial planning and private wealth background.
Elsmore returned to litigation, adding HF Global Financial Solutions and Harry Fung to the parties it was suing for return of the $1.9 million. The company also revealed that during Ashley’s short reign at the top he had issued 19.3 million Elsmore shares, for which no payment had been received.
This raises a few small problems. First, 17.7 per cent of the company’s capital has been issued to people who may have no right to hold it.
Second, the issue was so large it would have had to be made with shareholder approval, which didn’t happen.
Third, if the shares were issued at the same price as those in the IPO, it should have raised$3.7million.
Fourth, if the parties who hold the shares don’t pay, the company may have to declare a loss of $3.7million.
The shares have now been suspended from trading for seven months and could be in limbo for longer yet, because it failed to pay its listing fees. Their last trade was at 2.1¢, so subscribers to the float have burned 90 per cent of their stake. When Pierpont tried to contact their registered office this week, he was told he had dialled a wrong number, so he’s not sure whether Elsmore can even pay its phone bill. Meanwhile, if anyone offers you a few Elsmore shares in an off-market trade, just make sure they weren’t some of those issued by Ashley.
Why hasn't anyone been locked up over this??? ASIC wake out and do your job!
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