Wednesday, 20 March 2013

SiN Feature: Tinkler's liquidators get personal

THE spectre of bankruptcy looms over Nathan Tinkler after lawyers probing the failure of the coal baron’s Mulsanne Resources switched the focus to his personal finances and the family trust controlled by his wife.

Robert Newlinds SC, conducting a public examination on behalf of Mulsane’s liquidators, told the court last Friday that Tinkler declared taxable income for the financial year to June 30, 2011 of $9,834.00.

Tinkler confirmed that apart from $250,000 in various joint bank accounts, he relied on his wife for handouts.

“I’m very lucky, yes,” he said with a straight face.

For the previous day and a half Nathan Leslie Tinkler had been quizzed on the events leading up to Mulsanne’s default on a $28.4 million obligation to coal explorer Blackwood Corporation.

Tinkler signed a Share Placement Agreement (SPA) on May 6, 2012, committing Mulsanne to purchasing a third stake in Blackwood, which is 51 per cent owned by global commodities house Noble Group.

He formally defaulted on his obligation to pay the agreed $28.4 million on July 19, 2012. The liquidators’ examinations come six months after Blackwood ran out of patience and applied to have Mulsanne wound up.

Ferrier Hodgson’s Robyn Duggan and John Melluish were appointed joint liquidators on November 20, 2012. They have been investigating Mulsanne’s affairs and the events leading up to and since its default.

The sudden shift in questioning last Friday brought Tinkler’s lawyer, Alec Leopold SC
indignantly to his feet. What did Tinkler’s taxable income have to do with Mulsanne, he objected?

Newlinds explained to Registrar Jennifer Hedge that the Tinkler family trust is relevant to the examinable affairs of the company because the liquidators “are entitled to test recovery”.

He outlined a hypothetical scenario where Blackwood, as Mulsanne’s petitioning creditor, obtains judgement for the $28.4 million against Tinkler personally. It bankrupts him and sequesters his estate.

In this scenario Newlinds said, the terms of the Tinkler Family Trust and how it makes distributions to the trust beneficiaries are critical elements in the liquidators’ considerations of future recovery action. The registrar agreed and the questioning resumed.

The value of the Tinkler trust fluctuated through the course of the afternoon. It was $1.4 billion. It was $1.2 billion. Value? Tinkler told Newlinds he operates in terms of “strategic value”.

Maybe that’s why estimates of the Tinkler group liabilities vary. From “about $500 million” to “$600 million” to even $800 million.

Maybe that’s why Tinkler doesn’t approach retail banks when looking to raise money. “They don’t understand my business model,” he said. “They don’t understand how I create my wealth.”

Much was made of the 196 million Whitehaven Coal shares Tinkler controls. It’s been reported that the stake in Whitehaven is securing up to $700 million in borrowings. Tinkler conceded under questioning that the trust was asset rich, cash poor.

He insisted however that Trust assets like Patinack Farm could be sold to yield $100 million in cash after the repayment of debt.

Newlinds persisted with the personal line. Did Tinkler own any shares? No. Bonds? No. A car? No. Property? “I think I own a farm at Port Macquarie.” He said it was worth $700,000.

The Tinker Family Trust was created in 2007 after the former electrician acquired a royalty over coal production from the Middlemount coalmine in central Queensland. Then in 2008 he pocketed $440 million after selling his shareholding in Macarthur Coal.

He told Newlinds the Trust had paid $100 million in tax upfront. That meant subsequent distributions to the trust beneficiaries – unitholders in this instance – are currently tax-free.

Ironically, it’s the Middlemount royalty – which pays $1 per tonne of coal – that is central to Mulsanne’s failed attempt to buy into Blackwood.

The more that emerges about this deal, the more curious it looks.

Tinkler’s preferred option in raising $28.4 million to buy the stake in Blackwood was to sell the Middlemount royalty stream to commodities trader Noble Group.

Noble already had its own royalty stream from Middlemount and Tinkler had done business with the group before.

On the basis of what emerged during last week, his success with Noble seems to have depended largely on Noble director Will Randall and the strong relationship the two have.

And here’s where it gets interesting. Noble owns 51 per cent of Blackwood. The final condition precedent Blackwood had to satisfy before it could issue the placement of new shares to Mulsanne was a shareholder meeting to obtain approval.

Shareholders - and Noble with 51 per cent was the only vote that mattered - voted in favour. The meeting took place on July 12, 2012.

From that date, Tinkler had five working days to satisfy his obligation. Yet despite months of conversations, discussions and negotiations leading up to the critical payment date of July 19, 2012, Will Randall and the Noble board never agreed in writing to buy the Middlemount royalty. “I was hung out to dry”. Tinkler said.

It’s a curious expression. More than once during the two day examination Tinkler talked of his close relationship with Randall and the many successful dealings between himself and Noble.

More than once he explained how a precipitous drop in commodity prices during 2012 gutted sentiment for energy sector deals.

But it didn’t stop him committing Mulsanne to the Blackwood SPA despite there being as yet no documentary evidence provided to the liquidators to show the Middlemount royalty deal was even discussed. Newlinds SC asked him if he knew what “prudent” meant.

Yet despite the difficulty Tinkler was having in securing an enforceable contract – a difficulty compounded by the fact Tinkler only controlled 75 per cent of the royalty and the owner of the other 25 per cent wasn’t selling – it emerged Mulsanne’s Blackwood purchase was to be only the start of the proposed enterprise.

After acquiring a third of Blackwood the plan was to embark on an acquisition spree. Tinkler said Brazilian commodities group Vale was known to have up to $400 million in unwanted coal assets in Australia.

He also identified Guildford Coal as a source of scale. The listed junior holds 21,000 square kilometres of coal-prospective tenements in Queensland.

Guildford counts US hedge fund Och-Ziff among its shareholders. In the desperate final flurry to raise the SPA funds last July, Tinkler had travelled overseas to meet with the fund’s controllers. He returned empty handed. Coal was no longer cool.

In all of this it’s hard to imagine the Blackwood board had no inkling Tinkler’s preferred option for obtaining the SPA funding – selling the Middlemount royalty to Noble – wasn’t happening.

Nor it seems could it ever have happened without the agreement of the royalty’s other owner, Tinkler’s ex-business partner Matthew Higgins.

Several times Newlinds asked Tinkler if he had had a falling out with Higgins. After one such query last Friday, Tinkler responded “I had breakfast with him this morning.” Higgins owns his quarter share through another Tinkler Group entity called Oceltip. The two men are currently in dispute over the royalty payments in the Queensland Supreme Court.

When Tinkler was asked if Oceltip’s partners had first right of refusal in the event one partner wanted to sell their stake to a third party Tinkler was uncertain.

What’s more, Newlinds told the court that Tinkler’s three quarter share in Oceltip became encumbered at some point late in 2012.

Noble had loaned Tinkler $5 million separate to the Mulsanne negotiations and Tinkler put up his stake in Oceltip as collateral.

So there he was, months after the SPA deadline, supposedly contemplating selling his stake in Oceltip to the party that already had a charge over it.

Consider also that the lender – Noble - owns more than half of Blackwood; the intended recipient of the funds Mulsanne is looking to raise.

Blackwood now finds itself bankrolling the liquidators’ investigations, presumably with funds from a facility extended to it by Noble, a facility that was recently increased to $6.5 million. Its repayment date was also extended, to June 30, 2013.

Ferrier Hodgson’s Duggan and Melluish and their lawyers Clayton Utz know the public examinations increase the pressure on Tinkler. No doubt they hope that pressure compels him to settle. All has to do is ask his wife for the money. And Tinkler isn’t the only one eager to talk to the trustee of the Tinkler Family Trust.

On Friday Newlinds raised the prospect of summoning Rebecca Tinkler and forcing her to disclose how she distributes funds from the trust.

Given Mrs Tinkler was never an officer of Mulsanne it’s hard to see how the liquidators could justify such a summons at this point. But with Clayton Utz in their corner you can bet it’s under consideration.

In the meantime Tinkler and his lieutenants have been ordered to redouble their search for material showing the Middlemount option was being pursued before the SPA was signed. 

That material must be submitted by the middle of next month. And team Tinkler will be examined about it in May.

Whether they will have to return to Australia from Singapore for the next round of examinations is yet to be resolved. The liquidators' won’t want to pay for an audio video. Tinkler's lawyers will argue it is the only fair option.

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