Harlequin Property’s independent trustee has heavily criticised plans from the company’s chairman for the future of the troubled investment scheme.
Papers lodged by trustee KPMG and Harlequin with the court in Saint Vincent and the Grenadines, where Harlequin is based, show a rift between the two parties over whether the investment can, or should, be brought back from the brink of collapse.
Six thousand mainly UK pension investors ploughed around £400m into the unregulated overseas property scheme via financial advisers, hoping for ‘guaranteed returns’ of 10 per cent a year on off plan villas, which never came.
KPMG’s Brian Glasgow was brought in last October as trustee of the troubled company, to get the best deal for Harlequin’s creditors, including investors, as it entered insolvency proceedings.
He has raised a series of concerns about last ditch plans to revive the ailing investment.
The proposals come from David Ames, chairman of Harlequin Property, who is seeking to stave off any claims against him and other directors from investors, and steer the company through receivership.
Mr Ames’ draft proposal, seen by FTAdviser, argues investors will benefit more from the sale of the resort if it can be turned around as a going concern than if it is forced to enter bankruptcy.
But KPMG in its January 2017 report stated it “has no basis for believing it likely… [Harlequin] will be able to make a viable proposal to its creditors”.
Harlequin’s final proposal needs to convince KPMG's Mr Glasgow it is a better deal for investors than liquidation.
Part of the disagreement between Mr Ames and Mr Glasgow is how much of the around £10.5m Harlequin won in a High Court case in December against the investment's former accountants will actually be available to either save the business or return to investors.
KPMG estimates 40 per cent - £4.2m - of the award will go to pay Harlequin’s lawyers, with a further £4.8m going to cover other aspects of the litigation funding.
Based on those estimates, that leaves only around £1.5m of the proceeds available to fund the scheme and/or distribute to investors and other creditors.
Major creditors include utility companies at Harlequin’s flagship resort Buccament Bay in Saint Vincent, which have cut off the water and electricity over non-payment of bills, forcing the resort to close and severing Harlequin’s main revenue stream.
Central to Mr Ames’ draft proposal, lodged with the SVG court on 26 January, is for ownership of Harlequin, in the form of shares, to be transferred in full from Mr Ames to the investors, in a “debt for equity swap”.
However KPMG, in its response to the draft proposals, dated 24 January, stated “the company [Harlequin] has not articulated the reasons why its proposal of a debt for equity swap would be more beneficial for creditors than a bankruptcy”.