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A rock crusher and a hard place
Legal small print casts a long shadow in a battle between a multimillionaire and a former 1990s high flyer, writes Tim Hunter.
On the phone from the Marlborough Sounds, Mike Jacomb sounds more regretful than aggrieved.
"Naivety is no excuse," he says. "But I'm a practical person and had a certain amount of success in the practical world in the electrical industry, which I'm good at, and I've always trusted people."
The success came from a generator hire business called Powerhire, built up since 1975 by Jacomb and sold to then-listed company Hirequip in 2004 for $11.3 million.
The cash brought more investment opportunity, including one brought to him in 2008 by an old friend, Ken Wikeley.
Now living overseas, Wikeley was a high-profile Auckland businessman in the 1990s with a wheeler-dealer style and a passion for horse racing. He co-founded the Rainbow's End leisure park in Manukau and was managing director of Eric Watson-backed aquarium developer Aquaria 21, a former listed shell company now known as Seadragon.
But after several years of litigation and seven High Court judgments it's safe to say his relationship with Jacomb is in tatters - and it's not over yet.
With claims involving $100m, the stakes have become so high that every legal twist assumes huge significance.
The story begins with another phone call.
"I hadn't talked to [Wikeley] for two years and he rang me up on the very telephone I'm talking to you now in the Marlborough Sounds," Jacomb recalls. "He said to me ‘Mike I've missed your friendship I'm having a difficult time, will you help me get started again? I've got this idea in Chile, you're too young to retire.'
"And I said to him, ‘Yes, I'll come and see what you're doing.' "
The idea involved a mining-related venture in Chile and included an investment in a rock crushing machine owned by a German-Iranian businessman named Parviz Gharagozlu.
Neither Jacomb nor Wikeley had a background in the mining industry, but both were captivated by the machine.
In a later court hearing, Wikeley said: "Parviz gave me a demonstration of a prototype crusher. The crusher seemed amazing to me. It could crush large rocks with copper, gold or molybdenum in them to powder in seconds . . . Just by demonstration alone I could see that it operated incredibly efficiently compared to conventional technology. I considered it revolutionary.
"After I finished my visit to the plant, I immediately turned my mind to how I could get the rights to the crusher. I thought there was a fortune to be made from it."
Jacomb had the same impression. "I have to tell you the concept in Chile was very good, and the crushing equipment was good, the mine was good."
To progress the investment idea, the two formed a New Zealand company called Edel Metals Group whose shareholders were Genset Trust, which represented Jacomb's interests, and a trust company called Geier. High Court rulings say Geier held the shares on trust for Wikeley and his associates, and was effectively controlled by Wikeley.
The shareholding structure was unusual and has become central to the litigation.
Edel Metals issued 100 million shares at $1 each - 23.75 per cent to Genset and 76.25 per cent to Geier - giving theoretical share capital of $100m. The structure also gave control of the company to Wikeley through Geier because Geier had more than 75 per cent of the shares.
But the shares were issued unpaid so the company had no cash, although it could technically call on the shareholders to stump up the full amount later.
A company with such a large amount of uncalled capital is, as a judge in the case later remarked, "nowadays a somewhat rare beast" and it is not clear why the shareholders wanted it that way. According to Jacomb, it was because "the others involved in Chile needed to see some value. It was always going to be paid up when the company made a lot of money".
In the meantime, however, according to a High Court ruling last April, Edel Metals was financed by borrowing US$1.5m from Jacomb in four tranches carrying 10 per cent interest and to be repaid in 18 months.
Wikeley appears to have provided no money, but the April ruling held that he had agreed to personally guarantee repayment of half the money to Jacomb if the company couldn't pay.
To cut a long story short, the judgment records that the Chilean deal didn't work, Edel didn't repay the loan and Wikeley didn't honour his guarantee. Jacomb sued Wikeley for his failure to pay the $1m owed under the guarantee, winning in a High Court ruling on April 10 last year.
Then came the twist.
Having been struck off in 2012, Edel Metals was resurrected last year and Wikeley installed as sole director. In a company filing on April 16 last year, Wikeley signed off the issue of 200 million new shares at a price of 0.001c each, raising a cash sum of $2000. In the document, Wikeley certified that in his opinion "the consideration for and terms of issue are fair and reasonable to the company and to all existing shareholders".
The shares were bought by Sundome Enterprises, a Hong Kong company under Wikeley's control.
Further shares were issued to Wikeley himself and three companies associated with former horse trainer John Collins, a Melbourne-based Kiwi expat who, according to a media report, was once Wikeley's private trainer.
Collins's website nzracehorses. com.au includes a 2011 testimonial from Wikeley saying: "I presently live overseas and have not been involved with horses much in Australia. However when I do, I will certainly get involved again with NZ tried horses selected by John Collins."
Six days after issuing the shares at 0.001c to Sundome, Edel's board - effectively Wikeley - resolved to call up share capital at $1 from Genset and Geier. The Jacomb trust was faced with paying $23.8m for what was now an 8 per cent stake in a company with no operating business.
Under the constitution, shareholders who failed to pay a call would forfeit their shares but remain liable for the payment.
Geier's ability to pay its $76.2m call was dubious, to say the least. In a November ruling on the dispute between Jacomb and Wikeley, Associate Judge Roger Bell said the call on it could be disregarded.
"It is a corporate trustee. Mr Wikeley has a history of involvement in shell companies . . . It would be naive to believe that Geier Ltd would be good to meet the call on its shares."
It didn't. Neither did Jacomb.
Associate Judge Bell's ruling against Wikeley's application to set aside a bankruptcy notice and effectively in favour of Jacomb, meant Wikeley was on the brink of bankruptcy. Only if Edel succeeded in its capital call on shareholders could he avoid the $1m liability under his guarantee.
The Sunday Star-Times tried to contact Wikeley to ask why the call was made and why Geier did not pay, but he did not respond. He has no fixed abode and told the High Court last year he was living at an address in Lexington, Kentucky, which corresponds to that of a Hilton Hotel.
However, despite Associate Judge Bell having described Edel's call on shareholders as contrived for Wikeley's benefit and effectively unenforceable as oppressive conduct under the Companies Act, Edel had another go at it five days before Christmas.
By this stage Edel's sole director was John Sorensen, an Auckland-based backdoor listing broker who was closely involved with Wikeley in the listings of wannabe telco Plus SMS and Aquaria 21.
In a notice issued on December 20, Sorensen demanded payment of 25c in the dollar from Genset and Geier by January 20 - sums totalling $5.9m and $19m respectively. Sorensen told the Star-Times he had been appointed by Wikeley and was pursuing Jacomb's trust to get money for investments in coking coal in north and South America.
He said he didn't know whether Geier had any money to pay its share and hadn't checked its ownership. "I've been busy at the beach," he said. "I don't care whether Geier's got any money. I'll find out. Between them they owe $100m. I'm sure something will turn up."
Geier's current sole director is Collins, the former horse trainer. Asked this month whether it would be paying the latest $19m cash call, which was due January 20, he said: "It will definitely be paying it . . . With that amount outstanding, I haven't heard anything from the accountant, when did that come up?"
Sorensen has now filed a lawsuit on behalf of Edel against Jacomb and Geier claiming the money allegedly due under the call.
Wikeley has appealed the High Court's refusal to set aside its bankruptcy notice, arguing that if Edel got money from the call he would no longer be liable for the debt.
Jacomb has hired a QC and has no intention of backing down.
- © Fairfax NZ News