Vulture fund fails to pick a mining company’s debts for its own profit « Mining Blog

Vulture fund fails to pick a mining company’s debts for its own profit

18. August 2012,

A so-called “vulture fund” – the description used to typify entrepreneurs who buy up poor country’s debts in an attempt to wreak a profit from them – fell on stony ground in July 2012.

The British government’s Privy Council blocked US-owned FG Hemisphere from collecting a US$100 million debt, purportedly owed by DR Congo’s state-owned Gecamines, after mining company allegedly failed to pay a loan provided by the former Yugoslavia to the former Zaire.

The loan was made during the 1980s for the provision of electrical power lines; FG Hemisphere was claiming a re-payment of US$100 million, after paying US$3.3 million to acquire the debt.

According to Bosnian police files, shown to the UK’s Guardian newspaper and British TV programme Newsnight, the arrangement had been brokered by a Michael Sheehan, “another so-called vulture who…chooses to refer to himself as Goldfinger after the James Bond villain [and] is said to have collected more than half a million dollars from setting up the deal” [Guardian, 18 July 2012].

FG Hemisphere appears to have used a mining shell company, called GTL, based in the Channel Islands tax haven of Jersey, to make the claim [Private Eye, 27 July – 9 August 2012]. A Jersey court initially ruled that Gécamines had to re-pay the debt.

But, in July 2012, the UK Privy Council – the final court of appeal for Crown dependencies – ruled that Gécamines was not responsible for the Congolese government’s debts. The Council said that the company could not possibly bear “responsibility for the whole of the debts of the DR Congo” [Private Eye, ibid].

Said the Guardian: “The ruling means FG Hemisphere can no longer collect the debt via Jersey and the case may set a precedent making it harder for vulture funds and other sovereign debt creditors to collect funds from state-owned companies.

“Peter Grossman, who runs…FG Hemisphere, had tried to exploit a legal loophole to demand the impoverished African nation pay back the debt…In an attempt to skirt British law, which bans “vulture funds” from buying poor nations’ debts on the cheap before suing them for 10-100 times the amount paid, Grossman took the case to Jersey, a crown dependency not covered by the UK law.

Before turning to the Jersey loophole, Grossman’s company had also unsuccessfully tried to “seize [sic] the DRC’s embassy in Washington as a down payment on the debt”

Justin Harvey-Hills, a partner at Mourant Ozannes, which represented Gécamines in the case, has claimed that the Privy Council ruling “will go far beyond Jersey and the UK. It sets an important precedent in common law. In order to enforce claims for sovereign debt against state-owned companies, creditors will need to show that the company is so much part of the state it has no meaningful independent existence.”

However, Private Eye has not been so sanguine, commentng that: “Despite the verdict…the loophole allowing vulture funds to chase debts via the Jersey courts remains. This is because the Debt Relief (Developing Countries) Act 2010, which put limits on pursuing old debts from the 40 most highly indebted countries through the UK courts, still does not apply in the offshore haven” [Private Eye, ibid].

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