The end appears nigh for the struggling MFS/Octaviar group, with the Public Trustee of Queensland applying for a liquidator to be appointed to the group after it failed to meet a $348 million debt repayment. The payment crystallized after MFS sold 65% of its Stella Travel business to private equity firm CVC, effectively breaching a covenant attached to the notes. PTQ stated that it is of the view that “the time has come for the group’s affairs to be under the control of an independent liquidator.”
PTQ claimed that it was spurred into account after being concerned at the group’s cash outflow and asset sales.
While it didn’t specify as much, PTQ may also have been somewhat concerned that shareholder and director, Chris Scott, whose interests now control the Octaviar board, was offloading key assets (such as management rights to Octaviar’s funds) to spokesperson, advisor and former business partner, Jenny Hutson without getting shareholder approval or an independent valuation.
PTQ probably figured, if Scott is liquidating the company anyway, they might as well formalise the process.
If things couldn’t get any worse for Octaviar, its newly appointed chairman, Paul Manka (as well as former director, Michael Hiscock) lost their NSW Supreme Court bid to each avoid repayment of a large margin loans attached to their (now worthless) MFS holdings.
Hiscock (who was the subject of the main Supreme Court case) was trying to avoid repayment of the margin loan, claiming that he instructed Citigroup to sell enough of his MFS shares to ensure that the account was kept above the margin, thereby usurping the margin loan contract. The NSW Supreme Court disagreed with Hiscock’s submissions, noting that his instructions allowed Citigroup discretion upon when they sold his shares.
Citigroup have generously given Hiscock and MFS Chairman, Paul Manka, seven days in which to pay back $4.9 million and $5.7 million respectively.
Interestingly, it appears that Manka and Hiscock both remain at Avenue Financial Planning, one of the larger financial planning bodies in the country. (Crikey noted earlier this year that many clients of Avenue invested funds in MFS’s Premium Investment Fund, which has since suspended redemptions and payments of interest.) One would perhaps think twice about relying of Manka or Hiscock for financial advice, given that both would be teetering on personal bankruptcy after failing to adequately diversify their personal portfolio and loading up with far too much debt. Crikey called Avenue to determine whether Manka and Hiscock were providing financial advice, but Avenue spokesperson, Simon Clifford, failed to respond
Interestingly, the Hiscock judgment gave rise to what appears to have been two separate acts of insider trading being committed by Michael Hiscock, who was at that time, a director of MFS.
On 16 January 2008, Hiscock implied to Tony Emerton of Citigroup that MFS (a company which he was a director of) was about to enter a trading halt, at the time, Hiscock was aware that Citigroup were liquidating part of his MFS holding to meet the margin requirements.
Two days later, documents provided tendered to the court indicated that “at about 9.45am on Friday 18 January 2008 … an instruction [was made via email] by the plaintiff to the defendant to sell the remaining MFS shares immediately.” Shortly after Hiscock sent that email, MFS CEO Michael King announced in an infamous teleconference that the company needed $550 million in fresh capital. During the teleconference, MFS shares dropped 70% to 99 cents and haven’t traded since. If Citigroup sold any shares between Hiscock’s email and King’s teleconference, it would appear to very much be a case of insider trading.
The issue of directors selling shares to meet margin calls is a controversial one. So far, ASIC hasn’t taken action against directors of MFS or ABC Learning who frantically offloaded shares to meet margin requirements, on the ground that the share sales were undertaken without the specific consent or authorisation of the directors. Evidence tendered in the Hiscock matter indicates a very different state of affairs. In Hiscock’s case, the share sales were made upon Hiscock’s request with the MFS director providing his broker/lender with what appears to be inside information, material to the MFS share price.
If anyone at ASIC is reading this, we would suggest they click here and read the NSW Supreme Court judgment.