LIQUIDATORS’ FINAL REPORT
June 2011
TO ALL KNOWN CREDITORS
BoS (Antigua) Limited – In Liquidation (“BOSA”)
A former member of the Betonsports Group of companies.
Background
We were appointed joint Receiver Managers of BOSA on 20 September 2007 by the Gaming Division of the Financial Services Regulatory Commission (“FSRC”), the gaming regulator in Antigua and Barbuda.
We were subsequently appointed joint Liquidators of BOSA by a further Order of the High Court of Antigua & Barbuda on 8 February 2008.
BOSA was the principal trading subsidiary of the Betonsports group, under the control of Betonsports PLC (“PLC”) which was listed on the secondary market of the London Stock Exchange in the UK. PLC had subsidiaries in various jurisdictions, and offered internet and telephone betting and gaming services to clients around the world, but predominantly in the USA. The published consolidated group accounts prepared to 5 February 2006 show gaming revenue for the year of $1.263 billion.
In June and July 2006, sealed indictments were filed against PLC and 14 other defendants by the US Department of Justice alleging various offences relating to illegal gaming activities, and associated crimes. On 17 July 2006 the CEO of PLC was arrested by US authorities.
A Temporary Restraining Order (“TRO”) was then issued by US authorities against the Betonsports group which compelled the US facing subsidiaries (including BOSA) to cease operations immediately. The arrest, legal proceedings and actions by the US authorities resulted in suppliers, payment processors and bankers to BOSA withdrawing services (including telephone services) and freezing funds, and led to customers requesting immediate payouts of their gaming accounts. This, in turn, led to BOSA (and the rest of the group) being unable to continue any form of trading in the North American market, which represented over 90% of the group’s turnover (93% per the groups published 2006 accounts).
It is understood that the impact of the TRO on BOSA’s cash flow denied the directors the ability to mount a full and detailed defence to the legal proceedings.
On 9 July 2006 the TRO was converted by the US Department of Justice into a Permanent Injunction.
In August 2006 the directors closed the BOSA trading operations in Antigua and Costa Rica with the resultant dismissal of several hundred employees, predominantly in Costa Rica.
The actions by the US Department of Justice are understood to have been prompted by statute legislation going through the US legal system which ultimately led to the Unlawful Internet Gaming Enforcement Act being passed in the Senate on 30 September 2006 and being made US law on 13 October 2006. In essence the legislation criminalized the operations of offshore gaming operators taking wagers from gamblers on US soil by internet or telephone.
On 22 November 2006, at the request of the FSRC in Antigua, the High Court in Antigua issued a Restraining Order against BOSA, withdrawing its gaming licence, and preventing it from trading, dissipating any funds or disposing of any assets.
Our appointment as Receiver Managers and Liquidators of BOSA was preceded by our appointment as joint liquidators of PLC by the shareholders and creditors of that company under English law on 17 May 2007.
Directors’ original Statement of Affairs
At the time of our appointment as Receiver Managers of BOSA in September 2007, we were passed a document prepared by the BOSA directors indicating what the assets and liabilities of the company were, to the best of their knowledge. In summary, this ‘Statement of Affairs’ indicated the following:
Directors Estimated Statement of Affairs at 4 February 2007
| BOOK VALUE | ESTIMATED TO RECOVER/PAY |
ASSETS | $’000 | $’000 |
Debtors | 10,414 | 6,491 |
Other | 84 | 84 |
TOTAL | 10,498 | 6,575 |
| | |
LIABILITIES | $’000 | $’000 |
Trade creditors | 3,203 | 2,703 |
Customers/Bettors | 6,200 | 5,550 |
Staff claims (Antigua) | 58 | 58 |
Group intercompany balances | 10,667 | 10,667 |
Other liabilities | 6,196 | 5,943 |
TOTAL | 26,324 | 24,921 |
| | |
ESTIMATED OVERALL DEFICIENCY TO CREDITORS | (15,826) | (18,346) |
Receipts and Payments in the Liquidation period
Receipts and Payments in the Receivership/Liquidation period (conducted in both dollars and sterling) from 20 September 2007 to June 2011 are summarized as follows:
RECEIPTS | GB£’000 | US$’000 |
Transfers from dollar account | 813.7 | - |
Debtors | 0.9 | 3,003.5 |
Bank Interest | 0.6 | 57.8 |
Totals | 815.2 | 3,061.3 |
| | |
PAYMENTS | GB£’000 | US$’000 |
Transfers to sterling account | - | 1,415.3 |
Legal fees and costs | 378.7 | 210.2 |
Court approved Receivers’ and Liquidators’ remuneration. | 345.8 | 35.5 |
Agents, storage and IT costs | 32.2 | 48.4 |
Receivership/Liquidation expenses/ disbursements | 58.5 | 49.5 |
Distribution to creditors (representing 4.6 cents in the dollar) | - | 1,302.4 |
| | |
Totals | 815.2 | 3,061.3 |
Recovery of Assets
The principal assets of the company at the outset of the receivership were debtor balances due from various parties. Upon interviewing the directors prior to our appointment, and seeking information from the FSRC in Antigua, we were provided with schedules indicating that debtor balances of circa $10.4 million were outstanding for collection. Within this figure there were two large individual balances outstanding, namely $2.4 million from an international funds processor based in Germany, and $2.8 million due from a Florida based individual. The backgrounds to these debts are as follows:
The funds processor debtor
BOSA employed the services of funds processing companies to process the large volume of credit card payments being made to place bets online and via telephone. At the time the TRO was issued by the US government, significant sums of money due from and to customers were in transit between various jurisdictions. These funds were frozen by the funds processing companies as a result of the US court orders. According to the directors and records of BOSA the sum of $2.4 million was due from a processor in Germany, and our pursuit of these funds proved to be a highly time-consuming, complex and expensive exercise.
The debtor in question disputed the debt in the first instance, leaving us obliged to provide back-up documentation to evidence the debt. The hard copy records comprised over 400 boxes of unlisted documents in a storage facility in Antigua, having previously arrived from the company’s trading premises in Costa Rica. We dispatched a team of accountants and lawyers to Antigua to examine the records, but after meticulous analysis, these proved to be insufficient and incomplete. Much of the company’s electronic data also proved to be deficient or corrupted. Our staff and legal advisors therefore embarked on an exercise to reconstruct the records needed to support the collection of this debt and also for general investigatory purposes. As the records were fragmented, this took place over several months through 2008 and 2009. Certain of the BOSA former directors and employees were also called upon to provide assistance, and the key directors of the company attended on us in London in late 2008 for formal interviews. Supporting evidence was also obtained from the many thousands of emails on the company’s email servers.
Given the amount of the funds outstanding the work undertaken by our firm was deemed necessary to provide the creditors with any prospect of a return, despite the uncertainty that the records could ever be brought to a level where proceedings, or a successful settlement, could be achieved.
As the debtor in question was located in Germany, we instructed German lawyers to act on our behalf in the negotiations and in preparation for potential litigation.
In June 2010, after protracted settlement negotiations over several months with the debtor’s German lawyers, a settlement of $900,000 was agreed and paid to the liquidation estate.
The Florida based debtor
Upon our appointment we were advised that a debt in excess of $2.8 million was due to BOSA from a Florida based businessman who had received the funds as a loan from the company. This individual was apparently known to the directors of BOSA and certain staff as someone who frequently sourced tickets to various sporting events for the benefit of large BOSA clients.
We were originally advised by the directors that there was full documentation and agreements in existence to support the loan, but again we were not able to locate the relevant documents within the BOSA hard copy records, or indeed the computerized records. The assistance of the former directors of BOSA was again sought, and eventually our investigations in Costa Rica led us to locate some relevant documentation. In the meantime, we instructed lawyers in Florida to locate the individual to serve documents on him, but he evaded contact until the middle of 2010 when he was served with court papers which led to our lawyers successfully obtaining judgment on the debt. However, there proved to be insufficient visible assets over which our US lawyers could enforce payment.
Other debtors
With regard to the remainder of debtor balances outstanding to the company, amounts totalling $2,100,647 were remitted directly to the FSRC in Antigua, which were subsequently passed on to the liquidation estate. The balance of debts could not be recovered due to disputes, counter-claims and lack of supporting documents in BOSA’s records.
Application to the US Attorney General to release funds
In the middle of 2009 we were advised that one of the original founders of the Betonsports group had reached a settlement with the US authorities in respect of various offences he had allegedly committed whilst in control of the company. The sum of US$43 million was seized from this individual by the US Department of Justice. Our lawyers in the United States advised that the liquidation estate might have had a legal claim to some or all of these funds, and accordingly work was undertaken by our firm and our legal teams to lodge a petition with the US Attorney General laying claim under US Remission proceedings. The claim was rejected by the Department of Justice on the basis that the funds represented the settlement of a fine, and were properly due to the US government. Upon receiving further legal advice in the United States as to the likelihood of success and costs involved in pursuing the matter further, the claim was abandoned.
Investigations
During the course of the liquidation period and the reconstruction of records to facilitate the debt collection process, certain transactions were highlighted as requiring further scrutiny or explanation. These primarily related to large sum payments or transfers between group and connected companies. Certain larger transactions prompted us to enter into correspondence with overseas banks, the company’s former lawyers and advisers, and certain former staff members and directors were interviewed. Most of these general investigations have now been resolved and concluded, although a few minor enquiries are still in progress.
Easybets and Hooball
We have conducted a detailed review and investigation into two significant transactions entered into by BOSA and PLC in late 2006. Two Asian trading divisions of BOSA, known as ‘Easybets’ and ‘Hooball’ were transferred to PLC in consideration for a reduction in the intercompany loan account between BOSA and PLC of $37.5 million. The basis of the investigation was to establish whether the BOSA creditors had been prejudiced by the transfers by reference to how much debt repayment would have otherwise been paid between the two companies bearing in mind they were both heavily insolvent at the point of transfer, and the fact that BOSA’s assets were frozen by the US and Antiguan legal proceedings only a short time later. We have also had to consider the transaction from the position of the PLC creditors, and how much was ultimately recovered by PLC in respect of the onward sales of the businesses, and the reduced intercompany loan distribution. The transactions were highly complex as they were conducted in jurisdictions in the Far East and incorporated the transfer of deferred consideration and ‘earn-out’ rights. We interviewed directors and called for information from both companies’ former advisers as part of our review. In respect of BOSA we concluded that the creditors had not been prejudiced by the transactions.
US Department of Justice
During the course of the receivership and liquidation we have provided assistance to the US Department of Justice in respect of their own parallel investigations into the affairs of BOSA and PLC.
As stated above, the former CEO of PLC was arrested by the US authorities in July 2006. In February 2010 he was sentenced to 33 months in prison for offences relating to racketeering conspiracy.
Creditors’ claims
Immediately upon our appointment we took steps to secure custody of the company’s electronic financial data and databases containing large volumes of players’ gaming accounts and creditor detail. The databases were contained within bespoke ‘CRM’ systems on secure servers in Canada.
With the help of in-house specialist IT consultants we analysed and restructured the data in order to have a ‘clean’ database from which we could organize the sending of email notifications advising our involvement and inviting players to make a claim. We then designed and created a bespoke claims management system whereby the many thousands of player-creditors could log on to a unique website to log their claim and details. We identified over 63,000 player creditors on the company’s system and whilst many of these showed very small gaming balances, each individual was contacted by email with a request to lodge a claim.
During the course of the liquidation we have received and agreed claims from over 9,500 individual gaming creditors, many of whom have had continuing dialogue with us by email or telephone with regard to their claims.
A summary of claims received and agreed in the liquidation is as follows:
| Notes | Per
Directors’
Original
Estimates
$’000 | Final
Agreed
Claims
$’000 |
Trade creditors | (a) | 2,703 | 5,516 |
Customers/Bettors | (b) | 5,550 | 8,625 |
Staff claims (Antigua) | | 58 | 0 |
Group inter-company creditors | (c) | 10,667 | 8,045 |
Deferred consideration liabilities | (d) | 5,943 | 5,943 |
| | | |
Totals | | 24,921 | 28,129 |
Notes to summary
- Trade creditors include suppliers of goods and services to the company, including marketing and advertising, information technology services, telephony services and professional costs. In some cases, the claims have been agreed at higher values than originally estimated by the company’s management due to contractual compensation and severance penalties triggered when various contracts were terminated without due notice.
- We have received and agreed a total of 9539 individual claims from player creditors who held on-line or telephone gaming accounts with the company. These claims amount to $8,625,083.
- The Betonsports group of companies comprised many different corporate entities in various jurisdictions. Some of these companies provided financial support or services from time to other group companies, which were conducted through inter-company loan accounts. The principal inter-company accounts owed by BOSA were to PLC, which provided working capital, BoS (Panama) Limited, which provided management payroll services and BoS (Costa Rica) Limited, which provided employee services to BOSA. BoS (Costa Rica) Limited did not lodge a claim to rank for a distribution against BOSA, despite the liquidators serving notice of its entitlement to do so. This accounts for the difference in the inter-company columns above.
- This liability relates to deferred consideration outstanding in respect of BOSA’s purchase of a gaming business in 2005 for which payment was due over a deferred time.
Liquidation costs
It is a requirement of Antiguan law that where liquidators are appointed by the High Court of Antigua, the basis of remuneration of the liquidators, and the quantum must be ratified by that Court.
Originally, the Court ordered that our firm would be remunerated on a combined basis as follows:
- $10 per creditor claim agreed and $5 per creditor claim paid and;
- A fee equivalent to 5% of assets recovered into the liquidation estate.
By June 2010, the amounts of $140,385 and $45,000 had been drawn on these two bases respectively and we reported to the High Court in Antigua accordingly. However, further substantial costs had been incurred in our undertaking the additional tasks highlighted in this report, particularly in liaising with the many thousands of creditors, undertaking the reconstruction of the company records, and conducting detailed investigations into various pre-liquidation matters. After producing evidence to the Court of these additional costs an Order was granted on 24 November 2010 that the liquidators be permitted to draw $390,309 from the estate to defray these costs, and a maximum further amount of $30,000 to complete the distribution of funds to creditors, conclude all investigation work, and then seek release from office.
Distribution to creditors
In November 2010, a timeline was scheduled with the High Court in Antigua agreeing that we would undertake to;
- Advertise a final notice for creditors to claim by 31 March 2011 in national newspapers in Antigua and the USA.
- Make a final distribution of assets to creditors from the liquidation estate by 30 June 2011.
- Seek release from office as liquidators at the High Court by 31 December 2011.
As indicated in this report under paragraphs 3 and 6 above we are in a position to finally distribute realized assets amounting to $1.302 million to creditors with agreed claims of $28.129 million. This equates to a distribution of 4.6 cents in the dollar. No further sums will be distributed.
Closure and Resignation
In accordance with the Order of the High Court in Antigua, subject to all matters in the Liquidation being concluded (as we anticipate), we will seek release from office as liquidators by 31 December 2011.
In the event that you have any queries regarding the content of this report, please contact us at betonsports@frpadvisory.com.
Yours faithfully
PETER WASTELL & NIGEL HAMILTON-SMITH
JOINT LIQUIDATORS –BOS (ANTIGUA) LIMITED